ISLAMABAD: Chinese company Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited (HSR) has sought revision in Implementation Agreement with Port Qasim Authority (PQA) to sort out the issue of payment of outstanding royalty charges and revision of royalty calculation for wharf 3 and 4.
In a letter to the chairman Port Qasim Authority (PQA), the Vice President HSR, Zeng Ming has stated that his letter is meant to address the ongoing matter concerning the unpaid royalty charges, as previously communicated in the company’s letter of June 26, 2023.
“The suspension of payments was not a decision we made lightly, but rather one compelled by circumstances beyond our control. We have always been committed to fulfilling our obligations, and we regret any inconvenience this delay may have caused,” said the vice president of Chinese company.
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He has further stated that in an effort to resolve this issue amicably the company has proposed to settle the outstanding royalty charges based on the minimum unloading volume stipulated in the Implementation Agreement, adding that this approach will resolve this matter promptly and responsibly.
However, all additional charges or penalties associated withthis delay be waived. The circumstances that led to the suspension were unforeseen and unavoidable, and the company believes that waiving these charges will allow it to move forward in a manner that is fair and beneficial to both parties.
The company is of the view that it is essential to revisit and renegotiate the method of calculating royalty charges going forward, adding that since the agreement was initially established, several significant factors have emerged that have substantially impacted its operations.
These factors necessitate careful consideration to ensure that the royalty calculation method remains fair, sustainable, and reflective of the current business environment.
Those factors include:1: Changes in coal specifications and requirements: The Sahiwal Power Plant was originally designed to use coal with a Net Calorific Value (NCV)of 4800 Kcal/kg, as approved by the government.
However, the 2016 policy revision by Nepra, mandating non-coastal plants to use NCV 5500 Kcal/kg coal, has created a significant gap in its coal procurement and unloading volumes. This policy change has led to financial losses exceeding $30 million.
Additionally, the plant’s coal consumption has decreased from the original estimate of 4.2 million tons annually to approximately 2.5 million tons at 5700 Kcal/kg.
2: Foreign exchange constraints: The outbreak of the Russia-Ukraine conflict has exacerbated Pakistan’s foreign exchange shortage, leading to stricter foreign exchange controls. This situation has severely impacted Sahiwal Power Plant’s ability to import High-Sulfur Residual (HSR) coal.
For instance, in 2022, only 870,000 tons of coal was imported, and in 2023, only 42,000 tons were imported. In 2024, the government authorized PKR payments for South African coal, which improved the situation, but imports still fell far short of the 3.5 million tons stipulated in the IA, with only 1.33 million tons imported.
3: Emergence of Thar coalfield and market saturation: The development of the Thar coalfield and the commissioning of pithead power plants have led to market saturation, reducing the operating hours for imported coal-fired plants and further diminishing the demand for coal. This shift has significantly impacted our operations and financial performance.
4: Fairness of agreement terms: The company has observed that other terminals under PQA jurisdiction, such as those servicing the Port Qasim Power Plant and PIBT bulk terminals, calculate royalty charges based on actual unloading volumes without imposing minimum requirements. This disparity has placed HSR operations at a competitive disadvantage and undermines the fairness of the current IA terms.
5: Refusal by Nepra: The Port Operator and PQA entered into an IA September 29, 2016. As per Article 20.2 of the IA, “the port charges including royalty will be according to the gazette notification issued by the GoP and will be collected by PQA directly”. And National Electric Power Regulatory Authority (Nepra) in a letter on August 22, 2019 refused to approve the minimum payment of royalty charges on 291,667 tons on monthly basis which was to be notified in the official gazette.
After explain the background, vice president of the Chinese company has strongly proposed revising the IA terms to align royalty charges with actual unloading volumes, adding that this adjustment will ensure fairness and sustainability while allowing us to maintain our commitments to PQA and the local economy.
Copyright Business Recorder, 2025
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