Power projects: Huge receivables hurdle to new Chinese funding

ISLAMABAD: Beijing has reportedly conveyed to Islamabad that huge receivables of existing Chinese power projects are the main hurdle in convincing banks for further funding in other power projects to achieve their financial closures, well informed sources in federal government told Business Recorder.

The issue of receivables and opening of revolving account for Chinese CPEC IPPs is still pending with their receivables now over Rs 300 billion.

The Economic Coordination Committee (ECC) of the Cabinet had approved a summary with respect to revolving accounts prior to Prime Minister’s maiden visit to China. However, confusion still prevails on this issue.

On November 11, 2022, Cabinet Division wrote a letter to Awais Hashim, Section Officer (Power Division), saying that Power Division has submitted two summaries on Revolving Fund pertaining to CPEC IPPs titled: (i) opening of Revolving Account for CPEC Independent Power Producers (IPPs) under Revolving Account Agreement; and (ii) Pakistan Energy Revolving Fund (PERF) for placement before the ECC for consideration which approved the PERF with modification in decision of October 31, 2022.

Cabinet Division has requested Power Division to intimate as to whether the summary titled “opening of Revolving Account for CPEC IPPs under Revolving Account Agreement” is still required to be placed before the ECC or otherwise.

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Last month a detailed meeting was held between Secretary Power Division, Rashid Mahmood Langrial and Vice President of China Export and Credit Insurance Corporation (Sinosure) Xu Xinwei to discuss the financial closure of certain CPEC energy projects.

M/s Sinosure has shared a list of the six following banks involved in financing the Thar Block-1 power projects by Shanghai Electric: (ii) China Development Bank (CDB); (ii) Industrial and Commercial Bank of China (ICBC); (iii) Postal Savings Bank of China Limited (PSBC); (iv) Bank of Communications (BCM); (v) China Minsheng Banking Corporation Limited; and (vi) Agricultural Bank of China (ABC).

According to sources, Chinese side was clear on Pakistan’s concerns and issues in project’s financial closures, saying that they understand four major projects of concern, i.e., Thar Block-1, Azad Pattan, Kohala and Gwadar power project. These projects are very highly valued by the Chinese government and relevant financial institutions.

Chinese side, sources said, noted that since last year Sinosure made a special task force to take these projects forward with Xu Xinwei as team leader of Task Force. He personally conducted numerous meetings and set-up Wechat groups to monitor regular progress on Thar Block-1 and Gwadar coal power projects.

He maintained that since February 2022, despite the overdue electricity bills issue, Sinosure has been consistently monitoring progress and has finished deliberations with Board of Directors.

For the past 6-7 months, Sinosure has been pushing six commercial banks for all the projects to issue loan plans because only long-term solutions from syndicates can be made possible with the approval of the government.

Chinese Task Force head also stated that the Chinese, i.e., MFA, NDRC, MOFCOM have attached great importance to these projects and have established different project committees involving Sinosure and these banks. Recently, Sinosure was appointed to assist in the approval work of these six banks.

Sinosure also met representatives of Shanghai Electric and the six banks face to face and further negotiations will continue to weigh progress on the project.

Chinese side further stated that for the Thar-coal projects, the current situation suggests that some of the banks are holding back investing in CPEC projects, due to the overdue power tariffs as they lack confidence in new projects, since most of the banks are public listed companies and have strict risk management systems.

“Of course, we have noted your (Pakistan) sides’ efforts and appreciate GoP sincerity in pushing forward the projects. However, we should also note that for the current stage the default amount is still high and the circular (revolving) accounts have not been established. So we request to push for removing these issues,” said Xu Xinwei.

Chinese further contend that from their side, they will continue their efforts to assist the banks and would try their best to push them to deliver the loan plans. After receiving these plans, Chinese will mobilize for the government’s further approval.

Secretary Power, in his remarks stated that the financial closure could be achieved for Thar Block-1. Chinese side remarked that two or three banks were expected to deliver plans soon whereas the remaining would be pushed by Sinosure to deliver their plan at the earliest. As soon as the requisite information was received from the banks, it would be sent to the government for approval, which would take 2-3 months.

Secretary Power then noted hat since Thar Block-1 power project employed local coal, its commercial operation would help the energy sector’s overall ability to make repayments because of cheaper electricity generation. Similarly, if Kohala and Azad Pattan power projects could be completed, they would help in bringing down the overall basket price and would help in making payment promptly to the banks which was in both Pakistan and the banks’ interest.

Secretary Power further stated that the Chinese side of a newly established permanent government mechanism to facilitate interactions with various government institutions. He said, this was headed by Power Division’s Additional Secretary, Shakeel Qadir Khan. He also informed that out of four pending issues with the National Electric Power Regulatory Authority (NEPRA), two had been resolved and Pakistan was working on addressing the remaining two at the earliest.

Responding to Secretary Power, Chinese side said that the overdue electricity bills were still a major concern for the banks and if that could be resolved then Sinosure could push forward the banks’ progress, adding that being unable to receive financing solutions from the banks, Chinese officials are unable to move forward to take the next steps.

For each project, Sinosure has three procedures. First, is to go to the audit and evaluation meeting, and then to the Board of Directors and then it is submitted to the government. At present, the first two stages have passed and only the third one is left. The solution is with the banks and if they don’t sort it, Sinosure can’t deliver to the government.

“Chinese banks are reluctant to push these projects. Chinese government and Sinosure are working together to dialogue with the banks and ensuring that these projects are pushed forward,” the sources cited Vice President Sinosure as saying.

On Gwadar coal-fired project, Chinese side said that this project is of high concern. Vice President Sinosure suggested that having direct conservation with the banks and enterprises as soon as possible and urged Secretary Power to play his due role in inspiring confidence of banks. He further suggested that there should be no alteration to the Gwadar project.

Secretary Power stated that conversations on the Gwadar power project were already being carried out through Pakistan embassy in China and that Kohala and Azad Pattan were at much more advanced stage.

However, before wrapping up the meeting, Chinese side reiterated that settlement of electricity bills by Pakistan would go a long way in inspiring confidence among the banks and promised to share the list of six banks with Pakistan as soon as possible.

Copyright Business Recorder, 2022