Recently, Prime Minister Shahbaz Sharif directed Power Division and Finance Division to persuade Chinese power projects established under CPEC and make deals for staggering the payment of their outstanding dues of about Rs. 350 billion.
When CPEC came into existence, Prime Minister Nawaz Sharif quoted Chinese President Xi Jinping as saying that the China-Pakistan Economic Corridor was “a gift from China to Pakistan.” Sharif, addressing PML-N party workers’ convention in Sindh province’s Hyderabad city, said the $46-billion CPEC will bring prosperity and development in the country. “It will prove as a game changer in the region, not only are power plants being set up on a fast pace, the government has also been able to save Rs1 billion from the actual cost of the deal,” he claimed.
Moreover, Nawaz Sharif, Pakistan’s prime minister-elect at the time, leaned into CPEC, leveraging Chinese financing and technical assistance in an attempt to end power shortages that had paralyzed the country’s economy.
Read more: Country faces electricity shortfall?
However, eight years later, China’s influence in Pakistan has only increased. It has burdened Pakistan with mountains of debt, allowing China to use “debt-trap diplomacy” to gain access to strategic assets. Having a closer look indicates that concerns around debt sustainability, tepid economic growth and overall economic and social instability in Pakistan predate CPEC.
Read more: Chinese govt rejects request to review rate of return on CPEC projects
A meeting was held previously presided over by Minister for Planning and Development Ahsan Iqbal over the theme that two dozen Chinese firms operating in Pakistan have warned that they would be forced to shut down their power plants unless payments of more than Rs. 300 billion in stuck up dues were made upfront.
Owing to the gravity of the situation, Prime Minister Shehbaz Sharif was expected to hold a meeting to find way outs to the serious issues that have affected the speed of work on the multibillion-dollar scheme of Chinese President Xi Jinping.
As reported by the Business Recorder, during the meeting, problems experienced by Chinese companies regarding non-CPEC projects, and measures being taken to deal with these problems along with timelines also came to the discussion table. Chinese embassy and Chief Executive Officers (CEOs) of power projects are constantly writing to all the involved authorities and looking for their help for payment of their dues, awaiting since long.
Read more: Chinese govt rejects request to review rate of return on CPEC projects
Also, Ahsan Iqbal wrote a letter to Prime Minister about the problems being faced by the Chinese companies in Pakistan.
The minister mentioned, the Embassy of China, as well as Chinese companies operating CPEC-IPPs have been continually approaching Ministry of Planning Development & Special Initiatives (MoPD&SI), and CPEC Authority to clear the increasing volume of their receivables from Central Power Purchasing Agency (CPPA-G), on account of sale/ transmission of electricity.
Commitment to clear payments of CPEC projects
In a recent meeting, Ahsan Iqbal claimed, the Chinese Embassy stated that the receivables of the 10 commissioned IPPs is at Rs 300billion at present, adding that due to the exponential increase in the prices of imported coal has aggravated the liquidity situation of these IPPs, driving at least three units (1600 MW approx.) to closure. There are numerous alerts for closing of further capacity in near future due to the liquidity crunch.
In addition, Chinese power companies have shown their apprehension that they may experience bank default to their lenders, if payables are deferred any further. Already, the continual delay in payments to CPEC-IPPs has caused unwillingness of Chinese Sinosure to implement further projects in Pakistan.
In his letter, the request was made to the Prime Minister to provide proper directions to Power Division and Finance Division to release essential payments to improve CPEC-IPPs’ liquidity situation.
Following this proposal, the Prime Minister directed that Power Division and Finance Division reach a deal with CPEC IPPs to agree to a staggered payment plan or other suitable modes for clearing their outstanding dues and submit a complete scheme at priority.
In compliance with the direction, finance Ministry has asked Power Division to organize a meeting with stakeholders and present compliance report to Prime Minister’s Office.
However, Finance Ministry highlighted that “in line with settlement with other IPPs, the issue of excess profitability in the case of CPEC-IPPs may also be duly addressed by the Power Division and consequent upon settlement, necessary adjustment be made against their receivables from CPEC-IPPs or alternatively any support provided by the Chinese side may be aligned with the Revolving Account.”