Pakistan urges China to soften terms for power deals

Updated 16 Apr 2020

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Seeks to bring down mark-up on debt to Libor+2pc, extension in debt repayment in tariff to 20 years. — AFP/File
Seeks to bring down mark-up on debt to Libor+2pc, extension in debt repayment in tariff to 20 years. — AFP/File

ISLAMABAD: Pakistan has requested China for ease in payment obligations of over $30 billion worth of about 12,000-megawatt power projects under the China-Pakistan Economic Corridor (CPEC) to minimise its financial and economic difficulties.

This is part of ongoing government efforts to secure discounts and savings on power purchases from independent power producers (IPPs) as circular debt liabilities cross Rs2 trillion.

A cabinet member told Dawn that Pakistan had formally taken up its difficulties with China for relief in purchase prices at the highest level during the recent visit of President Arif Alvi to Beijing, as Pakistan’s capacity payments alone were estimated to be closer to Rs600bn this year.

According to Prime Minister Imran Khan, the capacity payments could go beyond Rs1.5 trillion in a few years, which would be beyond repayment capacity of the people.

Foreign Minister Shah Mehmood Qureshi and Minister for Planning, Development and Special Initiatives Asad Umar, who also heads the Cabinet Committee on Energy, were part of the presidential delegation to China on March 17.

Seeks to bring down mark-up on debt to Libor+2pc, extension in debt repayment in tariff to 20 years

The cabinet member said the Chinese leadership had advised the National Development and Reforms Commission (NDRC) of China to discuss the matter with the financial institutions (mostly owned by the government). He said the matter could move forward under the aegis of CPEC’s Joint Working Group (JWG) on Energy before taking clear shape.

However, Pakistan has requested two basic relaxations in the existing agreements given the emerging challenges amid economic meltdown across the world in the wake of Covid-19. First, Pakistan desires to bring down mark-up on debt to London Interbank Offer Rate plus two (Libor+2) per cent from the existing average of about Libor+4.5pc.

Second, Pakistan has sought an extension in debt repayment period in the tariff to 20 years from the existing repayment period of 10 years. Almost all the power sector projects in the country have upfront 10-year debt repayment in their tariff structure. The two discounts are estimated to save about $500-550 million (more than Rs85bn) annual cash outflows.

Meanwhile, Chinese Ambassador to Pakistan Yao Jing met Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh on Tuesday. “Pakistan looks forward to Chinese support in dealing with this unprecedented situation arising out of this pandemic,” an official statement quoted Dr Shaikh as telling the ambassador.

The finance adviser also discussed with the Chinese ambassador the effect of the coronavirus pandemic on the overall growth of Pakistan economy as exports and remittances shall both suffer as economies around the world enter recession.

He said different economies had different levels of strength to deal with the losses and developing countries would be the worst hit by the impact of this slowdown.

Keeping in view the current circumstances, the World Bank, International Monetary Fund and G-20 countries are also talking about debt relief for developing countries.

The adviser expressed the hope that these forums would also be able to come up with a plan to enable developing countries like Pakistan to not only meet their international obligations but also to provide relief to their populations adversely affected by the pandemic.

The adviser thanked the Chinese government for all the assistance it had provided to Pakistan in dealing with the Covid-19 pandemic.

Published in Dawn, April 15th, 2020