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Payments to Chinese IPPs: CPPA-G seeks Rs100bn

  • Chinese IPPs have been agitated for the last one year on issue of due payments and urging GoP to open Revolving Account to resolve this issue
Published October 24, 2022
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ISLAMABAD: Central Power Purchasing Agency-Guaranteed (CPPA-G) has reportedly sought Rs100 billion for Revolving Account for coverage of payment to Chinese IPPs for 5-6 months as per Revolving Account Agreement (RAA), well informed sources in CPPA-G told Business Recorder.

Chinese IPPs have been agitating for the last one year on the issue of due payments and urging GoP to open Revolving Account to resolve this issue, which has already halted new investment in Pakistan, sources added. Chinese ambassador to Pakistan and Chinese companies have held meetings with Prime Minister, Finance Minister, Power Minister and other concerned authorities for resolution of payment issue.

Article 5 of the CPEC Energy Project Cooperation Agreement indicates that all the direct or indirect expenses incurred in maintaining this revolving account would be compensated by the power producers through discount arrangement to be mutually agreed.

To operationalise it, in RAA, CPPA-G and IPPs agreed that all reasonable costs and expenses associated with the opening, operating, and maintaining of the Revolving Account shall be borne and paid directly by IPPs, where the cost is associated with the replenishment of the Revolving Account by the CPPA-G.

In other words the costs and interest amount charged by the bank on the amount withdrawn from the account shall be by borne by the CPPA-G.

Summary re-submitted to ECC: A revolving account for Chinese IPPs on the cards

As per RAA, CPPA-G is obligated to open a Revolving Account within 30 days after Commercial Operation Date (COD) of projects and fund the account on continuing basis to cover 22 per cent of the Capacity Purchase Price under the PPA.

“CPEC projects/ IPPs have been continuously approaching CPPA-G for early resolution of their payment issues,” the sources said.

According to CPPA-G estimates, monthly estimated funds required for Revolving Account are to the tune of Rs 19.348 billion, the sources said, adding that CPPA-G is of the view that Rs 50 billion for Revolving Account initially proposed by Power Division is insufficient and should be increased to Rs 100 billion.

The Federal Government has to open Revolving Account prior to the forthcoming visit of Prime Minister, Shehbaz Sharif to China, where over a dozen pacts are expected to be inked.

“RAA is for coverage of 22 per cent of the invoices raised by the IPPs and guarantee of Rs 100 billion will cover payments shortfall of 5-6 months in case IPPs withdraw funds on monthly basis, which is quite likely in the current scenario, and the CPPA will not be in a position to replenish the Account,” the sources maintained.

It has also been agreed that Power Division/ CPPA-G should reach out to Finance Division well before the expiry of guarantee amount (i.e., approximately 2 months) to refer the matter to ECC for resolution.

The sources said Power Division has sent a summary to the ECC in this regard and if the latter approves the RAA and opening of the Revolving Account under the RAA, following proposals have also been submitted for consideration: provide Government Guarantee for the credit line facility for Revolving Account amounting to Rs 100 billion in favour of the bank selected jointly by the CPPA-G and the Finance Division.

In case of withdrawal of funds by IPPs to the extent of available credit line facility from the RA, the replenishment of the utilized credit line facility will be the responsibility of CPPA-G subject to operational cash flow constraints, the sources said, adding that in case the CPPA-G is unable to replenish the credit line facility due to cash flow constraints, the matter will be referred to the ECC for resolution to avoid default under RAA.

The sources said NEPRA shall allow the financing cost to Discos in its tariff determination to the extent of contribution caused by each DISCO to overall revenue shortfall.

The ECC will also have to authorize CPPA-G to execute the RAA with other CPEC IPPs on the same lines as approved by the ECC.

Copyright Business Recorder, 2022


Comments are closed.

Az_Iz Oct 24, 2022 07:41am
Nobody will keep financing out of control expenditures and help the country provide subsidized food and fuel.
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Az_Iz Oct 24, 2022 07:45am
The country was receiving about $50 in exports and remittances, couple of years ago. It was not enough. It had to borrow money then. This year, the country earned $70 billion in exports and remittances. It is not enough. So it wants to borrow money. In the future, when exports and remittances fetch $100 billion, that will also be not enough. It is called economic mismanagement.
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