Pakistan seeks renegotiation of CPEC-IPPs contracts with China during PM visit

ISLAMABAD: Pakistan is set to float proposals to Chinese government for renegotiation on contracts of power projects established under CPEC on the pattern of other IPPs or to purchase 1200-MW electricity from Pakistan for onward supply to Afghanistan, well informed sources in CPEC Authority told Business Recorder.

These proposals will be presented to Chinese top leadership during the visit of Prime Minister Imran Khan to China commencing from Thursday (today).

Special Assistant to Prime Minister on CPEC, Khalid Mansoor has finalised all the proposals with respect to issues of CPEC projects, their resolution mechanism and future cooperation in different sectors.

According to CPEC Authority, over-dues/ receivables of CPEC IPPs are now Rs 200 billion, and IPPs may default because of rising prices of coal in the international market. IPPs may also suspend the operations of power plants as per suspension clauses of the signed Power Purchase Agreements (PPAs).

“Prime Minister will draw attention of Chinese top brass to the exceptional rise in capacity payments because of near simultaneous arrival of new capacity from projects undertaken under CPEC,” the sources added.

Prime Minister Imran Khan has been informed that if the pacts with the CPEC IPPs are similarly re-negotiated, an initial working suggests that Pakistan can save $ 14.29 billion over the life of these projects which comes to an average of $0.48billion per year for average project life of 30 years.

According to sources, when initial inquiries were made with the Chinese officials to explore the possibility of seeking a similar support from CPEC-IPPs, it was indicated that doing so would not be in line with the spirit of CPEC as it would seriously affect the sanctity of contracts signed under CPEC framework agreement.

The sources maintained that it was further said that the Chinese government would not view favourably the underlying fact that such a demand may be coming at the behest of the IFIs and other western lenders.

An alternate option to offset the cost i.e. $ 0.47 billion per year can be to sell power to China for further provision of electricity to Afghanistan, the sources said, adding that Pakistan can offer China to consider provision of electricity to Afghanistan through Pakistan for 30 years as part of their development assistance to Afghanistan. China through a contract may buy power from Pakistan and provide it to Afghanistan either at cost or at reduced rates as per its political terms.

Pakistan can allocate power from its power pool to China, the sources said, adding that China can also offer to lay transmission line connecting Pakistan grid to the nearest point in Afghanistan and invest in their grid.

The power balance of Pakistan till 2030 shows that Pakistan has a surplus power of at least 3,970 MW, which will increase over time.

Pakistan will supply power on its power purchase basket price on the basis of energy transfer rate and capacity transfer rate already in place for transfer pricing of power generation cost to the Discos and KE which is currently Rs 12/ Unit approximately.

The sources said through sale of 1200MW to China, Pakistan will earn approx Rs 100 billion ($0.57 billion) per year from the year of supply of power and for 30 years the savings will be to the tune of Rs 3,000 billion at current prices.

Meanwhile, sources in Commerce Ministry told Business Recorder that Prime Minister will also seek support from Chinese leadership to increase exports by $3 billion per annum. Commerce Ministry has shared its talking points with the Prime Minister, who is also Minister Incharge Commerce. Pakistan will request China to enhance the rice quota.