Thursday September 28, 2023

Dollar crunch also hits Chinese IPPs

April 11, 2023

ISLAMABAD: The ongoing liquidity crunch for dollars in Pakistan has exacerbated the financial difficulties faced by Chinese Independent Power Producers (IPPs), as the government deducts capacity charges due to their inability to generate the desired amount of electricity production.

The Chinese IPPs may have to invoke force majeure over the deduction of capacity payments by the government, penalising them for a fault for which they did not contribute at all. During an official meeting on Monday, they argued that they had imported coal or fuel to run their power plants, but the government was not providing dollars as agreed, given the lingering liquidity crunch. Consequently, the Chinese IPPs will face deductions in capacity payment charges, according to sources.

The Chinese IPPs plan to invoke force majeure to avoid capacity payment deductions, the sources said. The issue has become more controversial because smaller IPPs managed to import coal or fuel, and they questioned why such a facility was not provided to them. Faced with such difficulties, bureaucrats have been reluctant to accommodate genuine and justified demands of foreign IPPs because any discriminatory treatment could lead to another controversy.

The Chinese IPPs also raised the issue of the escalating monster of circular debt, which now stands at Rs 330 billion to Rs 350 billion. According to sources, this double-edged sword, consisting of capacity payment deductions and piling up of circular debt, puts their business model in jeopardy.

According to an official press release issued by the Ministry of Planning after the meeting on Monday, a follow-up progress review meeting was held on April 10, 2023, at the CPEC Secretariat, Ministry of Planning Development, and Special Initiatives in Islamabad.

The meeting was held to discuss important CPEC projects and the minutes of the 11th JCC meeting, following Planning Minister Prof. Ahsan Iqbal’s visit to China and meeting with Mr. Li Chunlin, Vice Chairman of China’s National Development and Reform Commission (NDRC) in Beijing on April 5, 2023.

Mr. Nadeem Javaid, Chief Economist/PD CPEC from Pakistan, and his Chinese counterpart, Mr. Pan Jiang, Director-General of the National Cooperation Department of the National Development and Reform Commission (NDRC), co-chaired the meeting. Senior officials from the Ministries of Planning, Energy, Industry, Communication, Agriculture, Interior, S&T, IT&T, and the Board of Investment attended.

Both sides expressed satisfaction with the smooth implementation of various CPEC projects and agreed that all pending issues would be resolved amicably in the spirit of traditional cooperation, mutual understanding, complete trust, and brotherhood.

Both sides expressed satisfaction with the progress made in the four priority SEZs, namely Rashakai, Allama Iqbal Industrial City, Dhabeji & Bostan SEZs, and agreed to expedite further progress to attract the relocation of high-quality industries.

The signing of the Framework Agreement for Industrial Cooperation was highly appreciated, and both sides committed to holding bi-annual meetings to review its implementation. Mr. Nadeem also requested strong support from the NDRC and other relevant Chinese government institutions to advance the implementation of important projects like ML-1, KRC, and key energy projects in line with a leadership consensus.

It should be noted that the year 2023 marks the Decade of CPEC and the strong partnership between Pakistan and China.

Accordingly, both Pakistan and China are celebrating 10 Years of BRI and CPEC on July 5, 2023, and high-level Chinese delegations are scheduled to visit Pakistan to witness the achievements made since the inception of CPEC.

To make the 10-year celebrations memorable, both sides expressed a desire to sign the 11th JCC minutes of the meet