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ISLAMABAD: Chinese national insurance company M/s Sinosure has reduced its coverage for Pakistan’s projects to 70 per cent from 95 per cent and banks are now asking for 25 per cent coverage from third party.

This was revealed by the representative of CHIC Pak Power (Private) Company Limited (CPPCL) at a public hearing which continued for nearly two hours and 30 minutes.

The company intends to establish a 300-MW coal-fired power plant at Gwadar on imported coal, after the Chinese government clearly refused to set up the plant in Thar on the Thar-coal. Prime Minister Shehbaz Sharif has also approved setting up of this project on the imported coal.

PPIB tells govt: Sinosure reluctant to insure any new power project

The hearing was officiated by Chairman NEPRA Tauseef H Farooqi, Member (Finance and Tariff), Mathar Niaz Rana, Member (Technical), Engr Rafique Ahmad Shaikh, Member (Licensing), Engr Maqsood Anwar Khan, and Member (Law), Amina Ahmed. NEPRA’s Muhammad Yousuf and Sajid Akram also raised a number of queries during the hearing.

The petitioner has requested to allow EPC cost of $403 million against allowed amount of $312 million and that actual M/s Sinosure fee under a buyer’s credit insurance be subject to maximum of 7 per cent of debt servicing.

The petitioner has requested the Authority to include the financial guarantee as part of the annual recurring costs @ 0.9 per cent of the guaranteed amount applicable in a particular year.

The company has requested the project development and sponsor’s cost of $ 47.87 million against allowed amount of $ 10.5 million. The petitioner has requested that the API-4 may be kept as the base index for the determination of coal price as outlined in the Authority’s fuel mechanism of September 23, 2016.

The company was represented by Barrister Asghar Khan, financial expert Usman and a Chinese national, who responded to questions from the Authority and PPIB. The company has sought a tariff of Cents 9.575 per unit from year 1 to 12.5 and Cents 7.0103 per unit from 12.5 to 30 years.

The levelized tariff of 30 years will be Cents 8.4935 per unit which is equal to Rs 27 per unit whereas during the first 12.5 years’ tariff will be Rs 32-33 per unit, in addition to applicable taxes. During the hearing, NEPRA assured the applicant that the Authority wants to support the project, which is essential for industry to be established in Gwadar for export purposes.

However, the Authority argued that the government has approved the project on imported coal but insisted that the since boiler has not yet been designed, the company should consider designing the project’s boiler on coal with specifications of Thar coal, as it will reduce the tariff by Rs 8-10 per unit.

The company’s representative maintained that since the project has been designed on imported coal of good quality, i.e., API-4, he would re-approach the company and place the proposal of the Authority. The issues of transportation of coal from Thar to Gwadar including laying of railway line and cost of transportation also came under discussion.

However, Member (Technical) Rafique Ahmad Shaikh suggested that the project company should prepare financial analysis of transportation cost of Thar coal to Gwadar vis-à-vis imported coal project. The company has sought 17 per cent IRR in dollar terms from earlier demand of 14 per cent due to current Rupee devaluation, and delayed payments by Central Power Purchasing Agency-Guaranteed (CPPA-G).

Chairman NEPRA was surprised at the demand of 17 per cent IRR by the company in dollar terms. The company has also sought $ 17 million as O&M cost against earlier decision of $ 13 million citing different reasons including salaries of staff working from China. The company has also sought some amount for security of the project despite the fact that specific cost has already been allowed in CPEC projects like Gwadar coal project. The project was granted generation licence on November 13, 2019. The Authority’s earlier decision is under hearing in Appellate Tribunal.

While representing the Project Company Barrister Khan, said that if there is a delay and it is on the account of the government or its entities then such delay should be compensable. The delays should be evidenced and upon sufficient evidencing the regulator is bound to acknowledge extension of time along with the prolongation costs, increase in the costs of material and equipment attendant with disruption and delays and this is customary in the international transactions of such nature.

“The PPA takes care of the mechanism whereby costly cost of the coal is avoided and the power purchaser is entitled not to dispatch the power plant. Benchmarking with the projects should be made which are bankable and operational not with the projects that have not been financed or abandoned, “he said adding that pricing of the coal should be determined after consultation with stakeholders and radical departure from the established practice should not be made.

Copyright Business Recorder, 2023


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Tulukan Mairandi Jun 13, 2023 08:05am
The Iron Brother Chinese are smart. They got wind of Ishaq Dar's plan to set fire to (arson) CPEC and other assets to get insurance payouts, to avoid default. Remember, Ishaq Dar was talking about assets as a "Plan B".
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Fatima Jun 13, 2023 11:47am
17% IRR, means Chinese get investment back in 4 years, also in dollars so protected. Explains why PK will never break through chains to develop
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