Liquidity constraints are taking a toll on China Power Hub Generation Company (CPHGC), an early-harvest project under the China-Pakistan Economic Corridor (CPEC).
Speaking to Dawn on Wednesday, Hub Power Company (Hubco) outgoing CEO Khalid Mansoor said cash flows of CPHGC, an associate company of the country’s largest independent power producer (IPP), are suffering because the government isn’t fulfilling its commitment.
“It’s a concern for us because the government had extended guarantees to the Chinese lenders that it would keep 22 per cent of their invoices in an escrow account on a replenishable basis,” he said.
CPHGC is a 1,320-megawatt imported coal-based power plant built as the only joint-venture project by Chinese and Pakistani investors under CPEC. It started commercial operations in August 2019.
The new plant is high on the merit list and was dispatched at the load factor of 65pc in the latest quarter. But its ability to pay dividends to the sponsors is limited because of growing overdues.
“The Chinese ambassador has also approached the prime minister to help resolve the issue. The company should be able to dish out dividends to maintain investors’ confidence,” Mr Mansoor said.
The circular debt grew to Rs2.3 trillion before the government paid Rs89.2 billion last week to 20 IPPs under renegotiated power purchase agreements.
With expected inflows of almost Rs58bn, Hubco is the second largest beneficiary of the latest plan to reduce the inter-corporate debt in the energy sector. It received Rs23.2bn last week and will get another Rs34.8bn in the next six months.
“Getting our overdues will largely alleviate the liquidity situation,” the CEO said.
Hubco’s trade debts, which include late payment interest as well as capacity and energy purchase charges, amounted to Rs87bn at the end of the January-March quarter, up 16pc from the beginning of 2020-21. Dividends from CPHGC constituted 46pc of the holding company’s consolidated profit of Rs8.8bn in the latest quarter.
Hubco owes around Rs44bn to PSO, which has traditionally been its main fuel supplier. “We’ll keep paying PSO in the same ratio that we are getting paid from the government,” he said.
As part of the circular debt settlement, Hubco expects to separately receive inflows of up to Rs18bn and Rs7bn through its subsidiaries namely Narowal Energy and Laraib Energy, respectively. “The other major inflow of cash we expect is in the form of dividends from CPHGC,” he said.