Second phase of CPEC: Chinese companies showing some reluctance

Chinese companies are reportedly reluctant to engage in the second phase of the China-Pakistan Economic Corridor (CPEC) due to failure to meet the terms and conditions agreed with existing companies especially in power sector and has bandied charges of enticement.

Background interviews with officials dealing with Chinese companies, discussions at a recent high level Joint Working Group of Pakistani and Chinese officials meeting as well as available documents paint a depressing picture.

According to sources, the representatives of Chinese companies which have established power projects in Pakistan under CPEC maintain that whatever agreements were signed should be honoured in letter and spirit and on a sustainable basis instead of raising the same issues again and again.

Sources further maintained that if any Ministry/ Organisation or Department interprets the agreement in a different way, CPEC related office provides them with the actual information to keep the record straight.

Joint working group to discuss 4 CPEC projects

The issue of overdue payment is one of the key factors which is discouraging new investors; for instance, Chinese power companies’ overdue amount is about Rs220 billion for which the representatives of these companies visit Power Division time and again and write letters requesting payment, but are not getting an encouraging response from the authorities attributed to a burgeoning circular debt hovering at around Rs2.3 trillion.

During background interaction with authorities, it was revealed that the government is unable to clear the entire overdue amount of Rs220 billion and is now trying to stagger the amount and most probably may opt for the same formula used to pay other IPPs i.e. in two installments – 40 per cent and 60 per cent.

The sources said there was some delay in payment due to objections on release of subsidy which is now being sorted out so that Chinese plants may continue their operations.

Routinely CPPA-G continues to pay for energy and liability of lenders but the main issue is payment of return on equity.

“Investors have established plants for profit and if they do not get a return on equity, then they will not be able to declare dividends,” the sources said, adding that the authorities have to find an innovative solution to resolve this issue.

Chinese investors have shown patience despite difficulties at the government level and operational level as not a single company has served default notice on the government.

According to sources, whatever activities were agreed at the meeting of various JWGs are now being pursued and coordinated.

Recently, a Chinese company which is constructing a 720-MW Karot Hydropower Project Company Limited (KPCL) sought an extension of time on account of Force Majeure Event (FME) attributed to Covid-19.

The company says that due to FME, the project has been suffering from delays and the primary obligation to achieve the Commercial Operation Date (COD) has also been delayed. KPCL has sent thirteen FME notices to the CPPA-G, GoP/PPIB and GoAJ&K under the project agreements.

The company argues that under the project agreement, the performance deadline to achieve obligations be extended on account of FME. A meeting in this regard was held on February 10, 2021, wherein it was decided that the extension of time would be granted to the company on a formal request to CPPA-G for interim EoT.

Accordingly, a formal request letter of January 22, 2021 and reminder on March 18, 2021 were submitted by the company to CPPA-G for interim EoT. The company requested NTDC on June 24, 2021, and CPEC authorities through a letter dated August 25, 2021 and PPIB on July 14, 2021 and September 1, 2021 for a meeting and support but unfortunately extension of time has not been granted.

The company says that it has already conveyed through letters that it needs an interim/tentative EoT urgently as the lender has required it for disbursement of loan.

The company issued notice on August 24, 2021 to lenders for 12th disbursement but the lender has once again put the same condition of EoT for releasing further loan disbursement.The company further contends that it will not release further loan installment if the company fails to get the EoT from CPPA-G, etc. on time.

The company’s CEO, Wang Minsheng, maintains that the company has been requesting for the interim EoT on a genuine ground but the extension has not been granted.

According to the CEO, the project is facing pressure due to shortage of cash flow, and the company will not be able to make payments to the contractors. The company will also face delay and huge financial loss accordingly.

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