KARACHI: The federal government requested the Chinese embassy on Thursday to arrange a meeting of the Joint Energy Working Group — a forum set up under the China-Pakistan Economic Corridor — at the beginning of next week to resolve the conflict between China Power Hub Generation Company Ltd (CPHGC) and the Hub Power Company Ltd (Hubco).

CPHGC served on Nov 23 an “encashment notice” of $150 million on the bank that issued a standby letter of credit (SBLC) on behalf of Hubco, which owns 47.5 per cent shares in the 1,320-megawatt power plant based on imported coal.

Sources told Dawn that the federal secretary of power met the Chinese ambassador on Thursday following a meeting of all stakeholders at the Prime Minister’s Office under the chairmanship of Mohammad Jehanzeb Khan, special assistant to the prime minister on government effectiveness.

CPHGC called the SBLC on the last day before its expiry on Nov 23. The SBLC is a guarantee through which lenders ensure that equity partners cover any cost overruns or funding shortfalls that may occur before the project completion date (PCD).

Even though CPHGC has been producing electricity for many years, its PCD is still pending because the lenders were waiting for the fulfilment of their last condition: the establishment of a revolving fund by the Central Power Purchasing Authority-Guarantee (CPPA-G) to help independent power producers overcome their liquidity shortfalls.

Analysts say CPHGC shouldn’t have called the SBLC, which will lead to a heavy financial burden on Hubco. That’s because the head of CPPA-G formally informed the CEO of CPHGC in a letter on Nov 18 that the Pakistan Energy Revolving Fund with a fiscal space of Rs50 billion was now fully operational and that it allowed withdrawals of Rs4bn per month against invoices starting from November.

“An effort is now underway to get the acknowledgment from the Chinese government and pass the message across to the lenders,” said the source while referring to the fulfilment of all PCD-related conditions — a development that invalidates the need for CPHGC to call the SBLC of $150m.

Meanwhile, Hubco said on Thursday it has initiated legal proceedings against the encashment notice to safeguard the interests of its shareholders.

“We’re pleased to inform that the court has issued summons to the impleaded parties in the matter,” it said.

The Hubco stock closed at Rs66.96, up 0.34pc from a day ago, after the company disclosed its decision on the stock exchange to initiate legal proceedings against the encashment notice.

Published in Dawn, November 25th, 2022