CPEC coal project

E-Paper | July 25, 2026

THE decision by a Chinese sponsor to withdraw from a coal-based power project in Punjab reminds us of two crucial facts. First, the investments arriving in Pakistan under the CPEC bouquet are entirely commercial; they come on a profit basis and are not exactly the ‘gift horse’ they are sometimes referred to as. Second, at least in some respects, the government’s much-vaunted push towards coal as the fuel of choice for Pakistan’s power generation could have been conceived in haste. The sponsor in this case is the China Machinery Engineering Corporation, and the project is a 330MW coal-mining and power-generation venture near Pind Dadan Khan in the Salt Range, Punjab. When CMEC applied for a tariff determination back in January of 2015, the total project outlay was $589m, translating into per megawatt CAPEX cost almost 15pc higher than that of Thar coal, even though this project is nowhere near as remotely located. CMEC claimed that the coal in the Salt Range had higher ash and sulphur content, the seam was far thinner, and its transport from the various locations where it would be mined added to the cost.

The Planning Commission and Nepra both opposed the higher project cost, and rightly so. CMEC asked for a levelised tariff of 11.67 US cents (brought down from 12.4 due to an error in calculation spotted by Nepra), compared with 8.5 cents for Thar projects in the 330MW range. The difference is wide and if it cannot be bridged it is better to let the sponsor walk. Locating a coal-mining and power-generation project in the Salt Range, given the peculiarities of the coal and issues with water availability, appears to be a problematic proposition to begin with. In fact, one wonders how much thought went into the decision to include this initiative on the list of ‘actively promoted’ ventures under the CPEC umbrella in November 2014. This is also a good time to remind ourselves that these Chinese power-sector projects carry lucrative commercial terms for the sponsors with an equity IRR of 20pc built into the tariff structure. Loans are to be taken from Chinese banks, serviced at 4.5pc above six-month LIBOR, with Sinosure fee of 7pc on top, and the funds used to purchase Chinese technology to be installed by Chinese labour. With these terms, the projects deserve careful vetting before they are approved.

Published in Dawn, May 19th, 2016

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Larkanavi

May 19, 2016 03:47am

Great editorial. China is a good friend and we value this friendship very much. But we must not forget that the Chinese entrepreneurs are extremely shrewd. The only consideration they have is their profit. In "Pak-China bhai bhai" slogan we must not forget or compromise our national interest. After all the best deal is the one in which both parties are winners. Sadly, that does not appear to be the case now.

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Daanish

May 19, 2016 05:32am

Excellent analysis. I hope our government ask technocrats rather than politicians to deal with this matter of business with understanding of fine details rather than politicians selfishness.

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vasudevan

May 19, 2016 07:06am

Chinese are expert manufacturers and expert economists. They very well know what is best for China. Their single-mindedness in this, with a total disregard for consequences, should be an example for others. Typical examples are their aggressive pursuit of their border/ sea lanes problem

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brr

May 19, 2016 08:37am

These seem to be no-bid contracts, and the chinese companies like to dictate terms.

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Pakistan1

May 19, 2016 10:11am

We want green solutions!

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M Rafique

May 19, 2016 11:17am

No body in sitting govt will listen to it, be sure of it

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Shahid Nawaz Khan

May 19, 2016 12:12pm

For sure, Nothing in CPEC is free. They've their own goals and they've done their home work before showing interests here. and that is the reason Pakistan fails everywhere. We didn't analyze a single entity in CPEC, i mean the Cost benifit analysis etc

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Atam Vetta

May 19, 2016 12:58pm

I am surprised at the cost of borrowing by the Chinese companies for the CPEC projects; 4.5% above the 6 month Libor, plus a fee of 7 %, an IRR of 20%. No project can bear such high costs. Compare it with the Japanese $15B loan to India for the Ahmedabad-Mumbai bullet train @ 0.85% all inclusive with 70% of the money to be spent in India.

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Dawn of Dead

May 19, 2016 01:24pm

If the USA made a similar proposal to Pakistan people would take to the streets complaining how the American's were gouging Pakistan.

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abdul

May 19, 2016 02:06pm

Pakistan would be better served by actively pursuing peace with India.......lets work together for the betterment of our nations.......we might be surprised that we will gain much more.....there will be no need for excessive spending on Defence.....our neighbourhood will be peaceful.....neither China, Saudi, UAE or America will be able to Arm Twist us.....in some years investments will return.....our Passport and Currency will be valued abroad and we will gain our respect not because of the Nukes but because of our Economic Strength.....asking of parity with India even though we are 1/5th their Size......is sheer foolishness.....those who support us and tell us to continue on this path even though this path has destroyed us are not our true friends.

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divergence

May 19, 2016 03:54pm

so who said CPEC is a charity? There is lots of criticism on CPEC, first local politicians do not start any project which caters to people's needs like hospitals etc and other projects that could revive our industries. Our politicians are uneducated and they have kept the masses uneducated so that their corruption is never caught. CPEC is well out such politicians' reach, there is no blame in corridor, blame should be put on the middlemen, that is politicians, who lack the finesse to manage investment and any project in Pakistan.

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divergence

May 19, 2016 04:19pm

whether you admit or not, I will say it plainly, India is against Chinese investment in Pakistan, and the political elite, looking at their history, have been sliding Pakistan into the category of a failing state, that is pushing Pakistan down in every field. Deal with CPEC in a rational manner.

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R.Kannan

May 19, 2016 06:05pm

The CMEC withdrawl can be a blessing in disguise in the long run. Modern thermal power plants are based on super critical technology which has a payback at minimum 660 MW. The 330 MW designs are obsolete and cost more to produce electricity. There is a big question as to why Pakistan is chosing this obsolete technology when countries like China & India are shuting down plants of this size and all new projects have super critical technology.

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aarkay

May 19, 2016 06:17pm

@Abdul, straight from the heart like a true Indus Valley citizen. We fully support your views and would love to strengthen your hand. This is the way forward. Good Luck.

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Saleem

May 19, 2016 06:44pm

This is interesting. On one side we know that coal is a far bigger pollutant that any other fuel. The question is where to head next. the obvious answer is for developing indigenous capability in both renewable and Nuclear energy as fossil fuels are not an answer to our problem. Nuclear is far greener that it has been made to believe, and does not produce any green house gases. The spent fuel is not in such quantity that it becomes a concern. Renewable energy can decentralize the power generation and therefore reduce the dependence on central generation and distribution capabilities. It's interesting that we spent billions of dollars on importing generators and batteries but never created a capability of our own. Unless the government spends money on both generation and distribution infrastructure, achieving energy independence through private production will remain as elusive as it is now after almost quarter of a century in that direction.

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Just Someone

May 19, 2016 10:27pm

Extremely true. Most of CPEC projects, especially the power plants are very expensive. And the tariffs for them are being determined at a time when the price of oil, gas and coal is not just low, but it has crashed. Once there is a price increase, cost generated from these projects will be unbearable.

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Zak

May 19, 2016 11:23pm

Good article. At the end of any project Pakistan must come off the better and earn revenues.

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rehan

May 20, 2016 11:10am

I don't think anyone here considers CPEC as a "gift" or some kind of generous donation. It's investment from China.

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gp65

May 21, 2016 12:16am

"This is also a good time to remind ourselves that these Chinese power-sector projects carry lucrative commercial terms for the sponsors with an equity IRR of 20pc built into the tariff structure. Loans are to be taken from Chinese banks, serviced at 4.5pc above six-month LIBOR, with Sinosure fee of 7pc on top, and the funds used to purchase Chinese technology to be installed by Chinese labour. With these terms, the projects deserve careful vetting before they are approved." Excellent point. Would also like to add that these need to be No bid projects i.e. it is not as though Pakistan can choose to obtain commercial funding from China but then assign engineering contract based on a bidding process to optimal costs.

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