Islamabad:
Pakistan has decided to release more than 100 billion to Chinese electric power plants ahead of the visit of Prime Minister Shehbaz Sharif, reducing pending quotas of almost a quarter in an attempt to address one of Beijing’s key concerns.
According to officials, the Ministry of Finance has instructed that payments are made from the subsidies of the electricity sector assigned in the current fiscal year. The RS100 billion is expected to be disbursed among Chinese energy producers in the next few days.
In addition to the RS100 billion, a number of RS8 billion is also awarded to regular budget allocations for Chinese energy producers.
The development occurred days before the departure of Prime Minister Shehbaz Sharif, who travels to China this weekend to attend the meeting of the head of states of the Shanghai Cooperation Organization (SCO).
The prime minister is also expected to participate in an investment conference organized by the Pakistan embassy. The sources said that the prime minister had instructed the Ministry of Finance to eliminate payments from RS100 billion to Chinese independent energy producers (IPP) before August 25.
As of June of this year, the outstanding quotas of the energy projects of the Economic Corridor of China-Pakistan (CPEC) amounted to RS423 billion. After injection, Chinese quotas would be reduced by a quarter to a little more than RS300 billion.
There was a slow increase in Chinese pending quotas in the last fiscal year, but the quotas still accumulated.
Since 2017, the country has already paid RS5.1 Billions in energy costs at the 18 Chinese electric power plants, which were equal to 92.3% of the invoiced amount, including interests. Pakistani authorities believe that the real remaining energy cost was less than RS300 billion and the rest of the amount was due to late payment surcharges.
The Government is in the process of taking almost RS1.3 billion on fresh loans from local commercial banks to withdraw the circular debt due to state electrical plants, nuclear plants, private property plants and Chinese plants. However, the agreement has not yet been formally concluded.
The unpaid debts of RS423 billion violate the 2015 CPEC Framework Framework Agreement, which unites the Government to completely clean the quotas, regardless of whether the authorities can recover the amounts of the final consumers.
Together with security, the lack of compliance with CPEC contracts is one of the reasons for slow progress in financial and commercial relations between the two nations. According to the CPEC Energy Framework Agreement, Pakistan had to create a rotating fund with 21% of energy invoices to protect Chinese companies from the circular debt crisis.
However, the previous government opened a rotating energy account of Pakistan in the State Bank of Pakistan (SBP) in October 2022 with RS48 billion in annual assignments. But it limited the withdrawals to RS4 billion per month, which led to the current debt shares of RS423 billion.
Of the assignments of RS48 billion for this fiscal year, the Government has prosecuted RS8 billion payments for the period of July-August, the sources said.
The RS100 billion would be distributed among the Chinese according to their turnover, according to the officials of the Ministry of Energy. They said that most of the fragmentation would go to the three largest electric coal plants.
Pakistan owed RS87 billion to the imported coal Sahiwal Plant, while the company received RS1.14 billion in the last eight years of its operations. The country also owes RS69 billion to the energy center of the coal center, compared to total claims worth RS834 billion.
The remaining outstanding quotas of the Port Qasim carbon energy plant were 85,500 million rupees, compared to the total bills of more than RS1 billion. The fees of the Thar Coal project remained at RS55.5 billion. He had claimed quotas worth RS566 billion.
The circular debt of the government’s energy sector was reduced by more than 800 billion rupees in June of this year, thanks to budget injections instead of any real improvement in the performance of the sector.
The reduction reported in the circular debt (CD) for fiscal year 2024-25 is mainly attributed to a single payment of RS801 billion instead of any sustained operational efficiency gain, according to a report by the Federation of the Chamber of Commerce and Industry of Pakistan (FPCCI) last week.
He added that this agreement was financed through fiscal measures, not through performance improvements in the electricity sector.
The FPCCI report stated that RS801 billion was originally assigned as a direct subsidy for consumers. However, instead it was used to reduce the actions of the circular debt, which can distort public perception by exaggerating the success of reforms and surrender the benefit that consumers should have received directly, according to the FPCCI.
While the holder suggests a net reduction in the circular debt, the inclusion of single -year adjustments, the previous year adjustments and others for a total of RS358 billion, mask the real trajectory, according to the report. Excluding the payment of rupees of 801 billion million and the temporary relief of these adjustments, the circular debt, in fact, increased by approximately RS379 billion, he added.
