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Pakistan to seek debt restructuring of CPEC power projects

Kabira

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ISLAMABAD:
Islamabad will seek debt restructuring of $3 billion against the China-Pakistan Economic Corridor (CPEC) energy projects in an effort to eliminate the need for increasing the power tariff by Rs1.50 per unit, Special Assistant to the PM on Power and Petroleum Tabish Gohar told The Express Tribune.

“The country is scheduled to make Rs435 billion or nearly $3 billion principal repayments to 12 Chinese independent power producers in three years,” he added.

“The government will request China to consider restructuring of the $3 billion repayments for 10 to 12 years, which in return will reduce the tariff increase requirements by Rs1.50 per unit.” The initiative is part of the hosts of proposals that the PTI government is exploring to minimise tariff increase requirements estimated in the range of Rs4.60 to Rs5.65 per unit under a recently approved Circular Debt Management Plan.


China has set up 12 power plants under the CPEC and the repayments of the Chinese debt are included in the electricity tariffs. The consumers would pay them in rupees. However, the government would return them in dollars. Explaining the preposition, Gohar said Pakistan would request China to set up a one-time CPEC debt refinancing fund of $3 billion, which will be used to pay to the Chinese companies.

After 12 years, the government would recover the amount from the consumers to repay to China, he added. “The proposal has been discussed with the Chinese ambassador to Pakistan and now it needs to be taken up at the highest level by both the countries,” the SAPM elaborated.
“We do not want to embarrass our friend but the fact is that half of the IPPs’ payments are related to Chinese power projects.”

The government had also earlier made an attempt to renegotiate the IPPs deals in light of the Mohammad Ali Inquiry Committee report, but China declined to reopen these deals, sources told The Express Tribune. The debt payments are due against Kohala hydropower project, Karot hydropower project, Suki Kinari power project, Port Qasim power project, Sahiwal power plant, Hubco power plant and Engro power generation project among others.

Read Indirect taxes drive FBR revenues

In addition to the $3 billion principal payments, the dividend payments also stand at $1.5 billion during the next three fiscal years. Against the inflows of $19 billion, the outflows of CPEC power projects are estimated over $31 billion on account of both dividend and the debt repayments over a period of 20 years, as per documents of the planning and development ministry from December 2018 . The commercial loans for setting up power plants had been arranged at an interest rate of London Interbank Offered (Libor) plus 4.5%.

However, it is the return on equity, which in some cases is as high as 34.2%, that will cause an outflow of $11.3 billion.

The total outflows of debt against one-dozen power projects had been estimated at $19.8 billion.
The previous PML-N government had termed the CPEC energy projects debt as “foreign investments”.
The Express Tribune had reported in December 2018 that Pakistan could only sustain these repayments by enhancing its exports.

In case the country remained unable to increase exports despite removal of energy bottlenecks, it would be difficult to manage these repayments.
Gohar said the government wanted to reduce the buildup of circular debt that was estimated to increase to Rs4.7 trillion in two years.

“About 40% of it will be reduced by increasing tariffs that too if we are unable to achieve goals like restructuring of debt and rationalisation of taxes,” he added. “Prime Minister Imran Khan has given us the task not to increase the prices against the required adjustments of Rs4.60 per unit.

The SAPM further said the circular debt management plan had been chalked out on the assumption of Rs168 per dollar exchange rate. “If the exchange rate remains at Rs155 for thr next two years, the tariff increase requirement will come down by another Re1 per unit.”

Gohar noted that there were good chances that the International Monetary Fund (IMF) might also relax timelines to increase the tariffs that were due in June and July.
“As against the current level of Rs2.6 trillion, the power sector circular debt would only come down to Rs1.1 trillion by end of fiscal year 2023 if we successfully implement a three-pronged strategy,” he added.

At the end of the PML-N government tenure, the circular debt was Rs1.15 trillion.
The average tariff is projected to increase to Rs20.25 per unit by fiscal year 2023 from the current Rs15.4 per unit. Gohar said there was a need to rationalise the taxes on electricity bills and fuel that would reduce tariff increase requirement by another Re1 per unit. “The plan to buy out 11 IPPs of 3300 MW capacity at discounted value of about $1 billion would reduce the power tariff increase requirement by 60 paisa per unit.”

The PM's aide said the World Bank had endorsed the proposal of buying old power plants and was ready to finance it. “The WB’s interest is that these old fossil fuel projects can be replaced with renewable energy projects.”

There is also a proposal to hand over the Hyderabad and Sukkur power distribution companies to the Sindh government -- a move that would save Rs100 billion per annum.
Gohar said the Sindh government was keen on taking over these companies and also willing to reduce the government’s liabilities to zero in five years. “If these proposals remain unimplemented, the government will have to increase the tariffs.”


 

Pakistan Ka Beta

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ISLAMABAD:
Islamabad will seek debt restructuring of $3 billion against the China-Pakistan Economic Corridor (CPEC) energy projects in an effort to eliminate the need for increasing the power tariff by Rs1.50 per unit, Special Assistant to the PM on Power and Petroleum Tabish Gohar told The Express Tribune.

“The country is scheduled to make Rs435 billion or nearly $3 billion principal repayments to 12 Chinese independent power producers in three years,” he added.

“The government will request China to consider restructuring of the $3 billion repayments for 10 to 12 years, which in return will reduce the tariff increase requirements by Rs1.50 per unit.” The initiative is part of the hosts of proposals that the PTI government is exploring to minimise tariff increase requirements estimated in the range of Rs4.60 to Rs5.65 per unit under a recently approved Circular Debt Management Plan.


China has set up 12 power plants under the CPEC and the repayments of the Chinese debt are included in the electricity tariffs. The consumers would pay them in rupees. However, the government would return them in dollars. Explaining the preposition, Gohar said Pakistan would request China to set up a one-time CPEC debt refinancing fund of $3 billion, which will be used to pay to the Chinese companies.

After 12 years, the government would recover the amount from the consumers to repay to China, he added. “The proposal has been discussed with the Chinese ambassador to Pakistan and now it needs to be taken up at the highest level by both the countries,” the SAPM elaborated.
“We do not want to embarrass our friend but the fact is that half of the IPPs’ payments are related to Chinese power projects.”

The government had also earlier made an attempt to renegotiate the IPPs deals in light of the Mohammad Ali Inquiry Committee report, but China declined to reopen these deals, sources told The Express Tribune. The debt payments are due against Kohala hydropower project, Karot hydropower project, Suki Kinari power project, Port Qasim power project, Sahiwal power plant, Hubco power plant and Engro power generation project among others.

Read Indirect taxes drive FBR revenues

In addition to the $3 billion principal payments, the dividend payments also stand at $1.5 billion during the next three fiscal years. Against the inflows of $19 billion, the outflows of CPEC power projects are estimated over $31 billion on account of both dividend and the debt repayments over a period of 20 years, as per documents of the planning and development ministry from December 2018 . The commercial loans for setting up power plants had been arranged at an interest rate of London Interbank Offered (Libor) plus 4.5%.

However, it is the return on equity, which in some cases is as high as 34.2%, that will cause an outflow of $11.3 billion.

The total outflows of debt against one-dozen power projects had been estimated at $19.8 billion.
The previous PML-N government had termed the CPEC energy projects debt as “foreign investments”.
The Express Tribune had reported in December 2018 that Pakistan could only sustain these repayments by enhancing its exports.

In case the country remained unable to increase exports despite removal of energy bottlenecks, it would be difficult to manage these repayments.
Gohar said the government wanted to reduce the buildup of circular debt that was estimated to increase to Rs4.7 trillion in two years.

“About 40% of it will be reduced by increasing tariffs that too if we are unable to achieve goals like restructuring of debt and rationalisation of taxes,” he added. “Prime Minister Imran Khan has given us the task not to increase the prices against the required adjustments of Rs4.60 per unit.

The SAPM further said the circular debt management plan had been chalked out on the assumption of Rs168 per dollar exchange rate. “If the exchange rate remains at Rs155 for thr next two years, the tariff increase requirement will come down by another Re1 per unit.”

Gohar noted that there were good chances that the International Monetary Fund (IMF) might also relax timelines to increase the tariffs that were due in June and July.
“As against the current level of Rs2.6 trillion, the power sector circular debt would only come down to Rs1.1 trillion by end of fiscal year 2023 if we successfully implement a three-pronged strategy,” he added.

At the end of the PML-N government tenure, the circular debt was Rs1.15 trillion.
The average tariff is projected to increase to Rs20.25 per unit by fiscal year 2023 from the current Rs15.4 per unit. Gohar said there was a need to rationalise the taxes on electricity bills and fuel that would reduce tariff increase requirement by another Re1 per unit. “The plan to buy out 11 IPPs of 3300 MW capacity at discounted value of about $1 billion would reduce the power tariff increase requirement by 60 paisa per unit.”

The PM's aide said the World Bank had endorsed the proposal of buying old power plants and was ready to finance it. “The WB’s interest is that these old fossil fuel projects can be replaced with renewable energy projects.”

There is also a proposal to hand over the Hyderabad and Sukkur power distribution companies to the Sindh government -- a move that would save Rs100 billion per annum.
Gohar said the Sindh government was keen on taking over these companies and also willing to reduce the government’s liabilities to zero in five years. “If these proposals remain unimplemented, the government will have to increase the tariffs.”


We should ask Iron Brother to forgive a good chunk of it.
Proves nobody is investing anything for friendship but for profit and own benefit , Pakistan must ensure its own economic and strategic interests while dealing with US and China .
 

Pakistan Ka Beta

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At least China is investing, other countries are barely investing. :(
yeah but we should be careful to know our needs , we already have excessive electricity and Chinese are very tough business minded people . We are in China camp and i support CPEC but we should not put all our eggs in one basket as too much dependence in international relations is not good .
Turkey , Russia , Japan , South Korea , Italy , Germany should be allowed and encouraged to invest in Pakistan as well .
 

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Complete DUTY FREE import of Alternative energy ⚡ machinery and equipment
Otherwise, whatever competitive edge we have left in the industrial manufacturing / export sector, will easily be eroded away as the cost would increase tremendously

Expensive deals made in the name of CPEC, during the tenure of PML N government, part of it forms the kickbacks, making their way to offshore accounts.
 

Indos

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Complete DUTY FREE import of Alternative energy ⚡ machinery and equipment
Otherwise, whatever competitive edge we have left in the industrial manufacturing / export sector, will easily be eroded away as the cost would increase tremendously

Expensive deals made in the name of CPEC, during the tenure of PML N government, part of it forms the kickbacks, making their way to offshore accounts.
Expensive deal is also caused by lack of competitor during the tender, any way Pakistan also need to use its SOE and domestic private sectors to build energy project
 

Kabira

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Problem is these projects were build in era of extreme desperation. With no other investment in sight. Between 2000-2015 barely 500-1000MW was added to the system before CPEC came around. Now time is right to renegotiate with China who I'm sure will understand.
 

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Complete DUTY FREE import of Alternative energy ⚡ machinery and equipment
Otherwise, whatever competitive edge we have left in the industrial manufacturing / export sector, will easily be eroded away as the cost would increase tremendously

Expensive deals made in the name of CPEC, during the tenure of PML N government, part of it forms the kickbacks, making their way to offshore accounts.
It has helped fund Many Papa Joe's.
Pandemic is perfect scenario to re negotiate. We need to stop singing Himalya se unchi and samandron se gehri BS first and realize they are in it to make a killing.
Even if they are not sympathetic to your situation they don't really have much of a choice as Pakistan cannot afford to repay in time. Be prepared to mortgage more national assets.
 

Patriot forever

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Problem is these projects were build in era of extreme desperation. With no other investment in sight. Between 2000-2015 barely 500-1000MW was added to the system before CPEC came around. Now time is right to renegotiate with China who I'm sure will understand.
The only desperation bro i can see was comission, and yes chinese companies have a notorious reputation of offering comissions to get their desired profits ( I am by no means accusing chinese government ).

The actual problem is way more capacity than actual demand (that is not indicative of desperation rather it fits well with comission and politics.) If it was just bridging the gap thats understandable but that is not the case here.
 

Kabira

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The only desperation bro i can see was comission, and yes chinese companies have a notorious reputation of offering comissions to get their desired profits ( I am by no means accusing chinese government ).

The actual problem is way more capacity than actual demand (that is not indicative of desperation rather it fits well with comission and politics.) If it was just bridging the gap thats understandable but that is not the case here.
The bet was that exports will increase so more energy will be needed. That didn't happen so we are left with capacity payments. But thats for now, in few years these power plants will work full time anyway.
 

Bilal.

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The bet was that exports will increase so more energy will be needed. That didn't happen so we are left with capacity payments. But thats for now, in few years these power plants will work full time anyway.
Exporters were crying that expensive energy price made them uncompetitive.
 

Patriot forever

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The only desperation bro i can see was comission, and yes chinese companies have a notorious reputation of offering comissions to get their desired profits ( I am by no means accusing chinese government ).

The actual problem is way more capacity than actual demand (that is not indicative of desperation rather it fits well with comission and politics.) If it was just bridging the gap thats understandable but that is not the case here.
Bro industry is prefering captive power plants, besides the industrial energy package under the current governement has made it a less difficult for them but it again comes at a cost of government subdisies. These kind of subsidies can support the industries until a certain limit and the math does not add up maybe in 10 years or so but thats exactly my point. You dont add 10 when you need 2 at that time, can always go for more when the need arrises to support industry. The result is 8-10 Rs per unit capacity payments.
All that was needed at that time was 2-4MW max, and long term cheap hydro sequencial addition in view of future demand.
 

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