ISLAMABAD: The finalisation of a few major energy sector transactions with Chinese financial institutions and investors appeared in doldrums owing chiefly to prevailing uncertainties and jittery Chinese financial institutions.

Testifying before a parliamentary panel, Chief Executive of Hub Power Company Khalid Mansoor said his company was working on $3.5 billion worth of energy projects under China-Pakistan Economic Corridor (CPEC) but their financial closure had been stopped due to ‘bad-mouthing’ of some existing investors over non-payments.

“The consortiums are falling apart. I have requested Dr Shamshad Akhtar, the caretaker finance minister, to intervene” and salvage the situation because financing for coal-based power generation including utilisation of Thar coal was possible only from China, he told a Special Senate Committee led by Senator Shibli Faraz.

He said the investors in Sahiwal Coal Power Project started ‘bad-mouthing’ about Pakistan over non-payment of about Rs16bn. Separately, he said he had also sensed that Shanghai Electric Ltd (SEL) may walk away from taking over K-Electric from troubled Abraaj Group because of lack of clarity and slow progress on tariff and security clearance.

Mansoor, representing about 21 Independent Power Producers (IPPs), explained that because of circular debt issue, the financial institutions and investors in Sahiwal coal project had compelled the Pakistan authorities to enter into supplemental implantation agreements that enabled creation of special Escrow Account to ensure certain payments without any hindrance.

Sponsors of one project ‘bad-mouthing’ the other; investors grow jittery

However, when payments worth Rs16bn got delayed, their bad-mouthing made China Development Bank and other institutions like China Commercial Bank and others jittery. He said Hubco had one of the largest CPEC portfolio of about 1,600MW projects under process.

He told Dawn that the caretaker finance minister was concerned when informed about the situation and said it was a very serious matter. He said the finance minister had sought a position paper to take up the matter at the appropriate level. “We have submitted that paper. Our total dependence is on China if we have to shift to the indigenous coal,” he said.

Mansoor explained that financing for coal projects was currently available only from China as European financial institutions were not funding coal projects while US institutions also discouraged coal projects even though they were now showing signs of changing mindsets subject to safeguards to environmental standards.

On a query from Senator Shibli, Mansoor said he was in China about a fortnight ago and felt that people from Shanghai Electric, which was also one of investors in one of the Hubco projects, were “quite sceptical and may walk away (from K-Electric deal) if things lingered on”.

A representative of K-Electric said KE’s multi-year tariff was still pending with the National Electric Power Regulatory Authority (Nepra) while a National Security Certificate to be issued by the Privatisation Commission was also pending. He hoped the deal with SEL will go through.

It was reported that a major cause of circular debt was 19pc technical and distribution losses, inadequate budgetary allocations for subsidy and its delayed and insufficient payments and inability of the distribution companies to recover their billed amounts.

Total circular debt, Mr Mansoor explained, stood at Rs507bn as of May 31, 2018 that included Rs308bn overdue receivables of the IPPs and Rs82bn of Hubco alone. The total circular debt should have seen an addition of Rs40bn by the first week of June.

He said it was ironic that 41pc of global energy, 60pc of Indian electricity, 73pc of Chinese and 40pc of US energy was based on coal but Pakistan’s dependence on this cheap indigenous fuel was almost zero despite having one of the largest deposits. Instead it was importing $12bn worth of imported expensive fuels that accounted for 22 pc of total import bill and made Pakistan’s export products uncompetitive globally.

Mansoor said Pakistan had the highest electricity tariff amongst comparable countries with Rs12.5 per unit cost compared to Rs10 in Vietnam, Rs9.2 in Bangladesh and Rs7 in India. On the other hand, despite having the highest bill recovery rate among all other sectors, industries in Pakistan faced higher electricity tariff at about Rs14 per unit.

CEOs of Kapco and Saif Power also told the committee that it was time the government should decide if power sector is to be run as a commercial business or social responsibility and whether generation companies should be privatised or run in the public sector.

They proposed switching domestic power supply to solar system to relieve the national grid of heavy losses and targeted power subsidy through BISP to poor consumers and charge even lifeline consumers at normal rates to let them feel the pinch of tariff cost.

They believed the government had put power companies on the privatisation agenda and hence not investing in operation and maintenance. At the same time, the government should stop using gas consumption in domestic sector and instead use it for cheap electricity generation and end disparity between gas and LNG supplies to power plants.

Senator Shibli said it appeared national security was in danger due to energy situation because all sectors of economy were dependent on electricity and getting uncompetitive. The expensive energy, he said, was pushing middle class consumers into poverty line of energy.

Published in Dawn, June 21st, 2018