ISLAMABAD: The long-awaited 300MW coal power project at Gwadar remains stalled, as the Chinese company CHIC Pak Power Company (Private) Limited is unwilling to proceed unless Nepra revises the project’s tariff upward.
Sources told Business Recorder that both the Private Power and Infrastructure Board (PPIB) and the Chinese firm, which uses the Chinese government to influence Islamabad, are not aligned on further extensions without payment of fees.
In a recent letter to the Managing Director of PPIB, the CEO of the Chinese company explained that following the issuance of the Letter of Support (LoS), the company had diligently complied with the Board’s requirements by submitting extensions for the performance guarantee associated with the LoS. The validity of the guarantee has now been extended to March 31, 2025, and the company has incurred approximately $1 million in extension fees after the LoS was issued, thereby fulfilling its obligations under relevant laws and regulations.
1,320 MW coal plant: PQEPC threatens to halt operations
Since the LoS for the project expired on December 31, 2024, the company requested the Board to approve the extension of the LoS at the earliest and waive the $150,000 extension fee for this occasion. The company also emphasised that, as part of the China-Pakistan Economic Corridor (CPEC) Energy Cooperation Agreement signed by both governments and as an inter-governmental cooperation project, it requests the Board to consider replacing the current bank performance guarantee with a Letter of Comfort.
The CEO of the Chinese company acknowledged that electricity is critical to the development of Gwadar Port and its surrounding infrastructure. A stable energy supply is essential to the development of the port and its associated projects, supporting economic growth and the livelihood of residents.
Given the importance of this project for the development of the Gwadar region, the company has invested substantial human and material resources during the development phase. Despite numerous challenges, the company has steadfastly driven the project toward completion and has never considered withdrawing or delaying it. The reasons for the delay have already been shared in a letter to the Ministry of Planning, Development, and Special Initiatives dated October 15, 2022, and were not due to any shortcomings on the company’s part.
To facilitate the project’s implementation, the company has incurred approximately $22 million in development costs while under pressure to meet deadlines. The company has accepted most of the modification requests to the Power Purchase Agreement (PPA) from the Central Power Purchasing Agency (CPPA-G).
The company has also initiated construction at the project site twice at PPIB’s request, and it has maintained a presence in Islamabad and Gwadar Port for seven years to advance the project and meet the minimum investment return requirements. With the Board’s support, the company has filed five petitions or review requests for tariff revisions through NEPRA, though the process is still ongoing.
Nepra approved the project’s tariff in May 2024. However, after a detailed analysis, the project was found to lack investment viability, and the company’s requests for tariff revisions have yet to be considered. Compared to the tariff approved in May 2019, Nepra has significantly increased the energy tariff (fuel cost) and LIBOR, which are adjusted based on market rates. Despite approving the cost of the China Export Credit Insurance Corporation’s medium- and long-term buyer’s credit insurance, Nepra has made a few adjustments to the capacity tariff, which includes fixed O&M costs and ROE. In fact, Nepra has technically reduced the internal rate of return and O&M costs.
Furthermore, Nepra has introduced a profit-sharing mechanism for the project, but it does not assume responsibility for any losses. Despite the project’s tariff petition not being approved, the company is still required to undertake significant social responsibilities that exceed its financial capacity. The implementation of a cap mechanism for cost items within the EPC contract, such as site preparation, bridges, and construction electricity and water, means that any surplus costs within the approved range will be deducted from the tariff, with any excess borne by the company. This deviates from the spirit of the FIDIC contract system, making it difficult for the company to justify similar terms in the EPC contract, ultimately leaving the company to bear the associated risks.
Although the approved capacity tariff is similar to that of the currently operational 1,320MW large-scale imported coal-fired power project, the unit investment and operating costs for smaller coal-fired power projects are significantly higher. Additionally, the project’s location in the Gwadar region results in security and related expenses that are much higher than those in other regions. The varying tariff determinations have not led to any positive developments and have instead imposed increasingly unfriendly requirements on this Government-to-Government (G2G) project. This has forced the project to move forward under a heavy burden, despite all parties involved exerting maximum efforts.
“It is unclear whether this approach stems from a reluctance to take responsibility or an unwillingness to advance the project. We are very puzzled by this situation,” said the CEO, adding that a detailed explanation of these issues and cost clarifications were included in a letter dated July 10, 2024.
The company has requested the Board to coordinate with Nepra to approve the project’s tariff in an objective, fair, and fact-based manner.
The CEO concluded by stating that as the project meets the investment conditions, the company will promptly submit an implementation schedule and mobilise all resources, with the support of both governments, to achieve financial closure and commercial operation as soon as possible.
Copyright Business Recorder, 2025
Comments