IMF asks cash-strapped Pak to renegotiate CPEC energy deals before making payments: report
The IMF has asked the cash-strapped Pakistani government to renegotiate the China-Pakistan Economic Corridor (CPEC) energy agreements before making payments of about 300 billion rupees (1,49,71,55,400 USD ) to Chinese power plants, putting Islamabad in a difficult situation. tight spot, a news outlet reported Thursday.
Currently, Pakistan has repeatedly requested international assistance to support its failing economy.
The talks with the International Monetary Fund are being held in Doha, the Qatari capital.
The global lender has asked the government to treat China’s CPEC power plants the same as power plants established under the 1994 and 2002 energy policies, The Express Tribune reported in a detailed report.
These factories had been created within the framework of the CPEC framework agreement. The IMF’s request came after China’s refusal in the past to renegotiate the terms of agreements with independent power producers (IPPs).
Sources said the IMF suspected Chinese IPPs of overcharging Pakistan and there was a need to reopen those deals. The Mohammad Ali report, which was the result of a nine-member committee headed by the former chairman of the Security Exchange Commission of Pakistan Muhammad Ali, on IPPs had identified an overpayment of about Rs 41 billion to IPPs Chinese.
Senior Finance Ministry officials confirmed to The Express Tribune that the IMF raised the issue of payments to Chinese IPPs with their willingness to renegotiate the deals.
Contacted, IMF Resident Representative Esther Perez stressed the need for fair treatment of all power sector stakeholders due to limited fiscal space.
“An important principle underpinning these (power sector) reforms is that all stakeholders contribute equitably to circular debt reduction, between government, IPPs and consumers, while protecting consumers. more vulnerable,” Perez said.
She said the Pakistani authorities should be aware of the limited fiscal space available to clear the unpaid arrears of stakeholders in the sector, and therefore there should be a trade-off between this and other government priorities, and the possibility to unlock lower capacity payments for electricity. as part of the aforementioned burden sharing among stakeholders.
Perez added that to contain circular debt in the power sector, the government of Pakistan has made efforts to reduce the cost of power generation as part of a broad power sector reform strategy. electricity, in particular by concluding the renegotiations of the terms of payment for the capacity with more than 30 IPPs last. year.
She added that several of Pakistan’s partners supported these reforms, including the World Bank and the IMF.
Finance ministry sources said the global lender also objected to giving 50 billion rupees to Chinese IPPs in February this year without renegotiating the deals first.
Due to objections from the IMF, the government did not directly disburse 50 billion rupees to Chinese IPPs last week.
Prime Minister Shehbaz Sharif had announced that Chinese IPPs would receive Rs 50 billion to ensure fuel supply.
Instead, the government released 50 billion rupees for the electricity division as part of the general grant applications for July. In return, the Power division made the payment to Chinese IPPs and a few others to deal with their “cash shortage”, sources said.
Sources added that after learning about the indirect payment to Chinese IPPs, the IMF asked Pakistan to provide the list of power stations which received the injections of Rs 50 billion.
IMF objections to clearing China’s IPP arrears could undermine Pakistan’s efforts to address Chinese concerns about CPEC’s slowdown over the past four years and its desire to put the multibillion-dollar initiative back on the tracks.
So far, 11 Chinese IPPs, set up with an investment of $10.2 billion, are operational, with a total generation capacity of 5,320 megawatts. Among these, nearly 2,000 MW of power plants had been closed last month due to the depletion of imported coal stocks.
Information Minister Marriyum Aurangzeb said the 600 MW units at Sahiwal and Port Qasim power plants would be back on the national grid from June 16-30.
As of May 13, Pakistan owed 340 billion rupees to these power stations, whose government has now indirectly erased part of the dues, leaving behind around 300 billion rupees.
China’s IPPs had threatened to shut down their power plants if the payments were not immediately cleared, prompting the prime minister to call a meeting to address their concerns.
Six other Chinese IPPs, set up with an investment of $6.8 billion, are in various stages of implementation and will add 3,584 MW to Pakistan’s generation capacity.
The previous government had renegotiated power purchase and implementation agreements with the 46 IPPs established under the 1994 and 2002 energy policies. The renegotiation is expected to save Rs 770 billion over 20 years.
The government had obtained concessions due to reduced return on equity and other power station cost reduction benefits from the 1994 and 2002 policies. In return, the government agreed to pay them Rs 403 billion in two installments.
Payments were made in the form of one-third cash, one-third five-year Sukuk and one-third 10-year GDP at the floating Treasury bill rate plus 70 basis points.
Sources said the IMF wanted the same treatment with Chinese IPPs and after renegotiating the deals, payments should be made in cash and treasury bills, according to The Express Tribune.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)