Gwadar coal-fired project: Inter-ministerial committee formed to review progress

ISLAMABAD: The government is said to have constituted an inter-ministerial committee to review the progress of the 300 MW coal fired project at Gwadar and suggest a way forward to expedite the project or suggest an alternative source of power supply to Gwadar area if Chinese company fails to renew Performance Guarantee (PG) by March 21, 2024, well-informed sources told Business Recorder.

Sharing the details, sources said the PPIB is processing a 300 MW coal power project at Gwadar, being developed by M/s CIHC Pak Power Company (Pvt.) Limited (CPPCL). This project is in the ‘Priority list’ of China-Pakistan Economic Corridor (CPEC) and holds paramount importance for the energy infrastructure and economic development of the region. After issuance of Letter of Support (LOS) on 23rd August 2019, CPPCL was given the target of Financial Closing (FC) by 23rd April 2020.

Thereafter, CPPCL signed security package agreements (IA, PPA, SIA) on 8th April 2021, with Commercial Operations Date (COD) of 30th June 2023. CPPCL started construction at site before FC in 2019.

Coal power project at Gwadar: Chinese firm shows ‘conditional’ willingness to commence work

However due to COVID-19 and delays in obtaining acceptable tariff from NEPRA, lenders’ reluctance and issuance of Sinosure policy CPPCL could not achieve FC by the deadline and also suspended on-site project activities. Consequently, at the request of CPPCL two extensions in FC date were accorded by PPIB, last of which expired on January 31, 2022.

In order to devise a road map for early implementation of project, various meetings were held among the key stakeholders including the Minister for Planning, Development and Special Initiatives (PD&SI) Co-Chairman of JCC, Chinese Ambassador and SAPM on Coordination in January 2023, wherein it was decided that the project work must be started immediately before Finance Closing to complete/energize the project by December 2025.

Later, during PM’s recent visit to China to attend 3rd Belt and Road Forum (BRF), held on 17-18th October 2023, Federal Minister for Energy along with Minister for PD&SI had a separate meeting with representative of CPPCL (VP of CCCC International), who confirmed that Sinosure’s approval is in place and CCCC will start internal approval process and seek opinions from banks to maintain close communication for early start construction.

However, they highlighted that NEPRA determined tariff need to be increased to make the project viable. It is pertinent to mention that NEPRA after first tariff determination in December 2018, re-determined tariff on 31st May 2019 and again on July 26, 2023, based on review petitions by CPPCL, however, CPPCL still not satisfied by the tariff and filed a third review petition to NEPRA in December 2023 after the gap of around six months. It is still not clear whether CPPCL will accept NEPRA determined tariff and start construction at site after 3rd review of tariff determination. Additionally, during 3rd BRF,

Chinese Premier, while highlighting Gwadar port’s potential for becoming a hub for regional connectivity, sought clarity on going ahead with construction of 300 MW Gwadar Coal-Fired Power Plant and in case this project is not feasible, an alternate may be devised.

Despite these extensions and facilitation by PPIB/GoP, CPPCL has not completed requirements and obtained formal extension in the FC date through LoS Amendment. Further, CPPCL in its recent request as outlined in its letter of December 11, 2023, asked for additional three-year extension in the already extended FC (i.e. from January 2024 to January 2027) with a COD of 33 months from the FC date, anticipated to be in 2030.

This request is not aligned with the decisions, directives, and discussions held during high-level meetings involving the senior officials and leadership from both countries.

In addition to the aforementioned efforts by PPIB in successful implementation of the Project, PPIB on December 19, 2023, approached Minister for PD&SI to take up the matter with high ranking Chinese Officials in NDRC for earlier start of construction activities at site as considerable time has already lapsed.

Keeping in view the strategic nature of the Project, Government of Pakistan cannot withhold development activities in Gwadar and Makran region for a long time i.e. 2030. Furthermore, delay of the Project till 2030, also raises a question of its requirement, since Government of Pakistan also plans to connect Makran and Gwadar region with National Grid.

Furthermore, Government also plans to expand coalmining and transportation of lignite coal from Thar through railway and increase power generation from renewables and hydropower projects. Hence electricity from other power projects located in the country can be supplied to Makran and Gwadar region to meet the ever-increasing electricity demand.

Regarding the provisions of FC date extensions, it is highlighted that for purpose of extension in FC, LOS envisages that for the events beyond the reasonable control of the Project Company, a one-time extension in the FC be allowed of up to a maximum period of six (6) months by doubling the amount of the PG.

The LOS also specify an extension in the FC for the delays on the part of the GOP entities or events beyond the reasonable control of the Project Company, commensurate with such period of delay, without doubling the PG.

However, as per Section 8.4 (ii) (b) of Power Generation Policy 2015, if any extension in FC Date is necessitated, sponsors will be required to submit a Bank Guarantee in double the original amount. Whereas on the other hand Power Generation Policy 2015 also stipulates in Section 8.4 (ii) (c) that if any extension in the validity of LoS is necessitated due to delays on part of GoP entities or for the reasons which are beyond reasonable control of the sponsors, the Board of PPIB may consider such extension without doubling of the Bank Guarantee with appropriate terms and conditions.

Extension in Financial Closing date of 300 MW Gwadar Coal Power Project at its already earmarked land at Karwat-based on imported coal, up to December 31, 2024, is in accordance with Section 8.4 ii (c) of Power Generation Policy 2015, subject to extension in Performance Guarantee for a period of at least three (3) months beyond extended Financial Closing Date (ie, up to or beyond March 31, 2025) and submission of Financial Closing date extension Fee under Private Power and Infrastructure Board (Fee and Charges) (Amendment) Rules 2022.

PPIB further decided that in accordance with clause 8 of Letter of Support, if the project company fails to renew the Performance Guarantee no later than ten days before its expiry (March 21, 2024), PPIB be allowed to encash the Performance Guarantee in full and hold such cash as security.

It has also been decided that since all CPEC projects are being governed by MoPD&SI, hence a high-level committee be constituted under Secretary, MoPD&SI with representation from all stakeholders, ie, NEPRA, CPPA-G, NTDC, QESCO, Government of Balochistan, GDA, GPA, Ministry of Finance, Ministry of Maritime Affairs and PPIB.

The committee will review the progress of the project and suggest a way-forward to expedite the Project or suggest an alternate source of power supply to Gwadar area.

Copyright Business Recorder, 2024