CPEC power projects: All set to ink $16bn debt re-profiling pacts during Li’s visit

ISLAMABAD: Pakistan and Chinese power companies are all set to sign pacts on re-profiling of debts and moratorium on payment of over $ 16 billion for five and three years respectively during the visit of Chinese Prime Minister Li Qiang, well informed sources in PPB told Business Recorder.

On Pakistan side, Private Power and Infrastructure Board (PPIB) whereas on the Chinese side, Chinese Companies will ink the Memoranda of Understanding (MoUs) which will serve as a basis for further discussions regarding potential FCY debt reprofiling.

Nine power generation projects and one transmission line project are setup and operational in Pakistan under China-Pakistan Economic Corridor (CPEC). However, affected by multiple factors, the consumer tariff in Pakistan has increased significantly over the last few years. In order to rationalize electricity costs, the Government of Pakistan (GoP) has proposed debt reprofiling for CPEC projects under a win-win arrangement.

$8bn CPEC debt re-profiling plan being prepared

In this regard, Minister for Energy (Power Division) and Minister for Finance visited China in July 2024 and met with Chinese authorities, financial institutions and various sponsors wherein various matters including options for reprofiling of debt were discussed. Minister for Finance on August 26, 2024, constituted the Task Force, in order to discuss and deliberate the options for debt reprofiling of CPEC projects debt. Ministry of Finance also appointed China International Capital Corporation (CICC) and Habib Bank Limited for providing Consultancy Services for debt reprofiling. After meeting under the chairmanship of Minister for Power on September 26, 2024, CICC and HBL proposed draft Memorandum of Understanding (MoU) with CPEC Projects, which has been reviewed and finalized by the Power Division and the Finance Division.

The PPIB argues that since the draft MoU is proposed for signing with a couple of CPEC Projects with respect to debt reprofiling during high level (PM) visit from China in October 2024, Power Division has been requested to consult Law & Justice Division under and in accordance with the Rules of Business, I973 as amended from time to time (RoBs) for finalization and vetting of the draft MoU so that approval of the Federal Government (Federal Cabinet) may be solicited prior to its execution as required pursuant to the RoBs and to kick-start negotiations with CPEC Projects pursuant thereto.

According to reports, due outstanding debt liability is $1.63 billion in 2024, $1.55 billion in 2025, $1.48 billion in 2026, $1.41 billion in 2027, $1.34 billion in 2028, $1.28 billion in 2029, $1.22 billion in 2030, $1.16 billion in 2031, $1.09 billion in 2032, $0.94 billion in 2033, $0.81 billion in 2034, $0.65 billion in 2035, $0.62 billion in 2036, $0.51 billion in 2037, $0.47 billion in 2038, $0.33 billion in 2039, $0.25 billion in 2040 and $0.01 billion in 2041. With this staggering in tenure of repayments, the overall repayment will increase from $15.4 billion to $16.62 billion with extension of five years from 2036 to 2041.

The purpose of MoU is to outline the mutual intentions of PPIB and the company to engage in discussions regarding FCY debt reprofiling of the project, with the aim to rationalize power generation tariff so as to achieve financial sustainability for power sector of Pakistan.

Terms and Conditions:

(i) the parties agree to discuss multiple options and chalk out a way forward for the debt reprofiling of the project based on win-win for all stakeholders concerned;

(ii) The parties agree to consider but not limited to the following terms (a) convert the base currency and base rate of the FCY loan; (b) increase the existing FCY loan tenor by another 5 years, and(c) introduce a 3-year principal payment moratorium forthwith;

(iii) Parties agree to make the best effort to agree on the terms and conditions so as to achieve the purpose of this MOU at the earliest and coordinate with all relevant stakeholders and authorities to seek support for the discussion and way forward.

The Parties recognize that ultimate completion of debt reprofiling as contemplated herein hinges on the support from Governments and relevant authorities and approval from relevant stakeholders including lenders and financiers.

The discussions under this MoU will include, but are not limited to, the terms of the debt reprofiling of the project.

Copyright Business Recorder, 2024