CPEC IPPs Reject Amended Revolving Account

Chinese government and Independent Power Plants (IPPs) working under CPEC have refused to accept amended revolving account amid rising circular debt.

Overdues of CPEC IPPs have exceeded Rs 500 billion, posing a significant obstacle to achieving financial closure for the 1124 MW Kohala and 700 MW Azad Pattan Hydro Power Projects.

The power division informed the cabeint committee on Chinese Investment Projects (CCoCIP) in a recent meeting that the Finance Division and CPPA-G had established an amended revolving account, which has not been acknowledged by CPEC IPPs and the Chinese Government.

The Power Division informed the cabinet body that although the revolving account had been opened, the Chinese were hesitant to acknowledge it.

The Power Division clarified that they are currently making payments of Rs. 4.00 billion per month, amounting to 87% of the total payment, which is the maximum feasible under the present circumstances.

During the discussions, the CCoCIP emphasized the necessity of adopting dynamic tariffs to stimulate electricity demand during winter months and fully utilize available power resources.
However, the Power Division highlighted practical challenges, including evacuation issues through the transmission system, and indicated plans to introduce a project for enhancing the transmission infrastructure.

The CCoCIP instructed the Power Division to devise a viable plan to boost electricity demand in the Northern region during the winter season and transition gas consumption to electricity.
A detailed presentation on the overdue payments of CPEC IPPs was sought from the power division by CCOCIP.

Provision of Electricity to Rashakai SEZ

The cabinet body was informed that Rashakai SEZ, a priority economic zone under the CPEC framework, has applied for NEPRA licenses for the distribution and supply of electric power, but the issue remains unresolved.

The Power Division stated that the Chinese were requesting the pool price of electricity instead of the industrial tariff.

However, granting the pool rate would necessitate government subsidy, thereby increasing consumer tariffs for SEZs and potentially deterring investment and industrial relocation.

The CCoCIP directed the Power Division to resolve the electricity provision issue for Rashakai SEZ in consultation with NEPRA and board of investment (BOI).

Fiscal Incentive Package for CPEC SEZs

The cabinet body was briefed that Chinese developers of Rashakai SEZ had proposed revisions to the existing incentives to attract Chinese businesses for industrial relocation in Pakistan.

Proposed incentives included customs duty exemptions on imported raw materials and semi-finished products for value addition, and changes in the policy of one-time exemptions on the import of capital goods to exemptions for a specified period.

The BOI informed the cabinet body that the fiscal package had been shared with the Federal Board of Revenue (FBR), and certain tax and customs duty exemptions had been granted according to the Finance Act 2022.

The CCoCIP stressed the importance of developing a fiscal incentive package for CPEC SEZs based on regional best practices and highlighted the significance of export-oriented industrial clusters for export growth.

The Commerce Division noted Chinese preference for EPZs over SEZs.

The Cabinet Committee on Chinese Investment Projects (CCOCIP), after reviewing the summary made the decisions to continue implementing concrete measures to restore the confidence of Chinese and other investors.

It decided to adopt a holistic approach to address security concerns, including conducting awareness campaigns in local communities where Chinese nationals are employed.

It further asked to develop SOPs for implementing high-security measures to instill confidence in the safety of foreign nationals working in Pakistan. The possibility of recruiting security personnel on a contractual basis should be explored.

Concerning the issues of “Overdues of CPEC IPPs” and “Revolving Account for CPEC IPPs,” the CCOCIP instructed the Power Division to provide a comprehensive briefing on these matters.
Regarding the “Provision of Electricity to Rashakai SEZ,” the CCoCIP directed the Power Division to resolve the electricity provision issue in consultation with NEPRA and BOI.