Clearing CPEC IPPs’ dues: ECC all set to approve Rs50bn revolving account

The Economic Coordination Committee (ECC) is all set to approve opening of Revolving Account (RA) of Rs 50 billion for Independent Power Producers (IPPs) established under China Pakistan Economic Corridor (CPEC), well informed sources in Power Division told Business Recorder.

The government had approved an amount of Rs 100 billion to clear some overdue receivables of CPEC IPPs – an amount of Rs 50 billion was paid to Chinese power projects, prior to last visit of Prime Minister to China – however, the remaining amount of Rs 50 billion is yet to be paid but there are indications that it would also be paid within the current month.

CPPA-G has also sought additional funding of Rs 100 billion to make payment to CPEC IPPs as low recovery from Discos has made things difficult for the power purchaser.

Chinese embassy and CPEC IPPs are continuously writing to the government about their financial woes mainly due to recent hike in coal prices in the international market.

Power Division, sources said, has requested Finance Division to provide Government Guarantee for the Credit Line Facility for Revolving Account amounting to Rs.50 billion in favour of the bank selected jointly by the CPPA-G and the Finance Division

The sources said, Finance Division has supported issuance of GoP guarantee for credit line facility for Revolving Account of Rs.50 billion for CPEC IPPs. However, terms of the credit line facility will be approved by the Finance Division.

Power Division argues that in case of withdrawal of funds by IPPs to the extent of available credit line facility from the RA, the replenishment of the utilized credit line facility will be the responsibility of CPPA-G subject to operational cash flow constraints.

On this point, Finance Division has said that to keep RA account sustainable, CPPA-G may make payment to IPPs as per their invoices on the best effort basis up to 90 per cent so the shortfall to be financed through credit line facility may be limited up to 10 per cent to avoid increase in the interest cost.

Regarding replenishment of credit line facility, CPPA-G would replenish every withdrawal after 15 days, positively. However, additional direct and indirect expenses incurred in maintaining the credit line facility may be borne in accordance with the Article -5 of the G2G CPEC Agreement 2014.

Power Division, in its draft summary has proposed that in case CPPA-G is unable to replenish the credit line facility due to cash flow constraints, the matter will be referred to the ECC for the resolution to avoid default under Retained Asset Account (RAA).

Finance Division; however, is of the opinion that replenishment of this facility should be funded as a loan on CPPA-G’s balance sheet and consequently vacation of GoP guarantee shall be the responsibility of CPPA-G. Further in case, CPPA-G fails to replenish the credit line facility on time, ECC may be approached two months before the utilization of entire facility.

According to the draft summary, NEPRA shall allow the financing cost to Discos in its tariff determination to the extent of contribution by each Disco to overall revenue shortfall.

Power Division has also sought authority for the CPPA-G to execute the Revolving Fund Account (RFA) with other CPEC IPPs on the same lines as approved.

State Bank of Pakistan (SBP) maintained that the opening of Revolving Account in respect of CPEC power projects and the matter related there to would be governed under the Agreements entered into between Governments of Pakistan and China and the subsequent agreements/ decisions of the ECC. However, on the matter of arranging a Government Guarantee to back the credit line facility for the RA, it may be noted that under IMF EFF program, there is a ceiling on the amount of government guarantees. The agreed clause with IMF reads: “the ceiling on the amount of government applies to the stock of publically guaranteed debt for which guarantees have been issued by the central government. It includes both domestic and external government guarantees.” Therefore, while deciding on issuance of any guarantee, overall ceiling limit of government guarantees to be observed, which is Rs 2,954 billion for end of March 2022.

Ministry of Planning, Development and Special Initiatives, in its comments has proposed that Power Division may seek prior approval of NEPRA that financing cost will be admissible in tariff. If needed, a policy direction to NEPRA may be issued.

The MoPD&SI further states that since the facility of RA is being extended to one set of projects, i.e., CPEC projects only, a parallel condition for maintaining a revolving account was corresponding discounts from the power producers. No such working and deliberation has been proposed. Power Division may extend full facility to all other IPPs provided that it ensures over-all savings vis-à-vis the existing late payment mechanism with IPPs.

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