ISLAMABAD: The World Bank has reportedly quizzed government’s economic team for not showing concrete progress on financial concessions from China on power projects established under the China Pakistan Economic Corridor (CPEC) at par with others, well-informed sources told Business Recorder.
The economic team headed by newly-appointed Finance Minister Shaukat Tarin held a virtual meeting with Managing Director (Operations) of the World Bank Axel van Trotsenburg and conveyed that the government wants a revision in the targets already agreed with the financial institutions.
Federal Minister for Economic Affairs Omar Ayub Khan, Minister for Energy Power Hammad Azhar, Special Assistant to the Prime Minister on Power Tabish Gauhar, SAPM on Revenue Dr Waqar Masood, the secretaries of Finance, Power and Economic Affairs, Governor SBP and Chairman FBR also attended the meeting with the Finance Minister during the virtual session.
According to sources, the World Bank argued that Pakistan should ensure a level-playing field to all countries and companies.
“The World Bank has asked why the Chinese have not sacrificed windfall profits on power projects that were recently sacrificed by other IPPs in negotiations with the government. The World Bank always raises this question at every meeting and Pakistani authorities respond by stating that the government is already in talks with China for concessions,” sources added.
Sources also said that Pakistani officials are in talks with the Chinese government and companies for similar financial concessions that were recently successfully negotiated with the IPPs. The final decision on Chinese projects is to be taken by the top leadership of the country.
The World Bank during the meeting urged Pakistan to abandon the establishment of coal-fired projects as these projects are not environment friendly. The economic team conveyed to the World Bank that Pakistan intends to generate 15 percent of total generation from local coal-fired projects while pointing out that reliance on power generation from coal in other countries like India and the US is far higher than in Pakistan.
Prime Minister Imran Khan has informally imposed a ban on coal projects, stating “no more coal projects in the country.” “The government has imposed a ban on future coal-fired projects due to policy and/or lack of resources and has proposed conversion of already commissioned and under construction 5500 MW imported coal-based IPPs and Jamshoro-1 to Thar coal from existing blocks 1&2,” the sources said, adding that the government has already decided to convert imported coal-fired projects on Thar coal. The World Bank was informed that the government was also working on early termination/buyout of these oil-based IPPs at a discounted value, estimated at $ 1 billion. If this solution is not adopted these projects would have to be paid Rs 450 billion in aggregate capacity charges over the remaining average seven years of their contracts. With disposal of 11 oil-fired plants, a benefit of Paisa 60 per unit can be passed on to consumers.
All new wind and solar IPPs would be auctioned off under the hybrid (i.e. wind + solar in the same location) as a model to be installed with aggregate dispatch factor of 45-50 percent as compared to around 20 percent for solar and 30 percent for wind on an individual basis. The basic principle is ‘an MWh added for an MWh displaced’, i.e., net zero addition whilst dealing with excess capacity issue. Managing Director (Operations) World Bank Axel van Trotsenburg responded that this proposal will be discussed in detail for future line of action.
On tariff increase, the economic team conveyed to the World Bank that a tariff raise proposal has already been shared with the Bank in the shape of Circular Debt Management Plan (CDMP) but the government cannot move forward in accordance with the plan. “We have clearly conveyed to the Bank that it will not be possible to increase tariff. It will be a political decision rather than an economic decision keeping in view the impact of the third Covid-19 wave,” the sources maintained. The World Bank is ready to support subsidy to domestic consumers (bottom 40 percent) using upto 200 units per month but not for those consuming over 200 units maintaining that they should pay full cost; and to cross subsidize domestic consumers using up to 200 units per month. The government is trying to convince the Bank that consumers who use upto 300 units per month also deserve some subsidy.
The authorities have also conveyed to the World Bank that an increase in tariff will be in phases (gradually) not in just one or two go.
The Pakistani team asked the World Bank to look into ways and means to reduce tariff, possible through tax rationalization. For instance, GST billed by IPPs is Rs 117 billion whereas GST billed to consumers is Rs 202 billion, which implies that an amount of Rs 85 billion was “excess” paid to FBR as GST. The financial impact of Rs 85 billion translates into Paisa 85 per unit. The World Bank has been asked to find out an alternate way to generate this amount from another source but allow a reduction in power tariff on this count.
IPPs’ fuel charges with taxes are of Rs 383 billion whereas fuel charges without taxes stand at Rs 361 billion. The impact of taxes and duties is of Rs 22 billion. The impact of Rs 22 billion on consumer tariff is Paisa 22 per unit. Power Division argues that if these taxes are rationalized its impact can be passed on to consumers.
“Whatever anxiety we have on tariff increase, a similar anxiety should also be for reduction in tariff,” the sources continued.
The next meeting of World Bank and Pakistani authorities will be held after two weeks. The Bank, in its Board meeting to be held in June 2021, will place Pakistan’s proposals on energy sector on its agenda. The government has one month to prepare its plan for the World Bank.
Copyright Business Recorder, 2021