Power projects under CPEC: Contract renegotiation proposals may again be floated

ISLAMABAD: Pakistan is likely to again float proposals to Chinese government for renegotiation on contracts of power projects established under CPEC on the pattern of other IPPs or to purchase 1200-MW electricity from Pakistan for onward supply to power deficient Afghanistan.

This idea is under active consideration at the highest level due to rising exceptional capacity payments, which has choked the entire power sector and is the main reason behind the inflated bills to consumers.

According to sources, overdues/receivables of CPEC IPPs are now Rs 300 billion despite the fact that the government established Pakistan Energy Revolving Account (PERA) from where payments are made to the Chinese IPPs.

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“If the pacts with the CPEC IPPs are similarly re-negotiated as with those established under previous power policies, an initial working suggests that Pakistan can save $ 14.29 billion over the life of these projects which comes to an average of $0.48billion per year for an average project life of 30 years,” the sources added.

However, there are apprehensions that China will not entertain any such proposal of Islamabad as when initial inquiries were made with the Chinese officials to explore the possibility of seeking similar support from CPEC-IPPs, it was indicated that doing so would not be in line with the spirit of CPEC as it would seriously affect the sanctity of contracts signed under CPEC framework agreement.

The sources maintained that the Chinese government was not viewing this request favourably given the underlying fact that such a demand may be coming at the behest of the IFIs and other western lenders.

International Monetary Fund (IMF), World Bank, United States of America and western countries have time and again urged Islamabad to give similar treatment to Chinese IPPs on the pattern of other IPPs.

The GoP and three dozen IPPs had signed revised pacts in 2020 which paved the way for discounted tariff of over Rs800 billion over the 20 to30-yearlife of the project or approximately Rs 0.47 per unit. However, agreements with some wind projects of IFIs have not been revised due to serious differences between US and GoP on the proposed incentives.

The sources said, an alternate option to offset the cost i.e. $ 0.47 billion per year can be to sell power to China for further provision of electricity to Afghanistan, adding that Pakistan can offer China to consider provision of electricity to Afghanistan through Pakistan for 30 years as part of their development assistance to Afghanistan. China through a contract may buy power from Pakistan and provide it to Afghanistan either at cost or at reduced rates as per its political terms.

Pakistan can allocate power from its power pool to China, the sources said, adding that China can also offer to lay transmission line connecting Pakistan grid to the nearest point in Afghanistan and invest in their grid.

The power balance of Pakistan till 2030 shows that Pakistan has a surplus power of at least 3,970 MW, which will increase over time.

Pakistan will supply power on its power purchase basket price on the basis of energy transfer rate and capacity transfer rate already in place for transfer pricing of power generation cost to the Discos and KE which is currently at Rs 12/unit approximately.

The sources said through sale of 1200MW to China, Pakistan will earn approximately Rs 100 billion ($0.57 billion) per year from the year of supply of power and for 30 years the savings will be to the tune of Rs 3,000 billion at current prices.

Copyright Business Recorder, 2023