Three major Chinese power companies have refused to renegotiate the power purchase agreements, ruling out any possibility of revisiting the capacity charges.
In a recent briefing, representatives from the Chinese companies stated that decisions to restructure energy-related loans should be made between Chinese banks and Pakistani authorities. However, they categorically rejected any changes to the terms and conditions of their profit and capacity payments as initially agreed under the power purchase agreements.
Pakistani Delegation Heads to Beijing
A Pakistani delegation has travelled to Beijing to seek an extension of the loan repayment period and a reduction in interest rates for CPEC and nuclear power plant projects. Finance Minister Muhammad Aurangzeb has also left for China to meet with officials to negotiate the extension of the repayment period.
The Pakistani government and Chinese companies borrowed approximately $17 billion from Chinese financial institutions to install power plants. Pakistan borrowed for nuclear power plants, while Chinese companies borrowed for CPEC power projects.
Sources from the Ministry of Finance indicate that Pakistan has proposed an eight-year extension for energy sector loan repayments, converting payments from US dollars to Chinese yuan and reducing the interest rates on these loans.
If Chinese officials accept Pakistan’s proposal, electricity prices in Pakistan could be reduced by 6 to 7 rupees per unit, with the cost of electricity from Chinese power plants alone potentially dropping by 3 to 4 rupees per unit.
Switching Interest Rate Instruments
Pakistan also aims to switch the interest rate instruments from SOFR to SHIBOR and reduce the interest rate exceeding these benchmarks. Implementing Pakistan’s request could lower the overall cost of the loans by up to 5%.
Pakistan must repay over $2 billion this year for energy sector loans. The country aims to defer this payment as well. Industrialists and domestic consumers are increasing pressure on the government to renegotiate power purchase agreements to avoid paying for unused capacity.
Stance of Chinese Power Plants
Officials from Sahiwal Power Plant, Port Qasim Power Plant, and China Hubco Power Plant have stated that the power purchase agreements based on the 2014 energy policy cannot be revised. The combined capacity of these three power plants is 3960 megawatts.
A Port Qasim Power Plant representative noted that ten years ago, Pakistan faced 10 to 14 hours of load shedding, and no local investors were willing to invest in the energy sector. The 2014 power policy was the basis for their investment.
Representatives from the Chinese plants emphasized that the main issues are high line losses, theft, and low recovery rates. Former interim Minister of Commerce Gohar Ejaz announced on Tuesday that the FPCCI would challenge these agreements in the Supreme Court, urging the court to intervene in these unsustainable conditions.
