CPHGC seeks funds for procurement of Afghan coal

The China Power Hub Generation Company (Pvt.) Ltd (CPHGC) has sought the required funds for import of coal from Afghanistan as a deal is expected to be signed on Wednesday (today) and delivery will start from July 10, 2022.

This was conveyed by Chief Executive Officer (CEO) CPHGC to CEO, CPPA-G on the proposed plan and progress to import coal from Afghanistan as per special instructions of Pakistan government.

CPHGC is one of the CPEC coal-fired power projects with 1,320-MW of gross capacity. CPHGC supports the vision of the GoP to create an economically viable environment in power sector of the country by providing cost effective energy production despite the currently unfavourable economic conditions.

However, current financial overview is very distressing and dragging all CPEC power projects to a point of complete chaos.

CPHGC, in its letter made reference to various meetings conducted between Secretary Energy (Power Division), CEO CPPA-G and CEO CPHGC during the last fortnight or so, where it was specially and specifically instructed by GoP to import coal from Afghanistan instead of the sources allowed under CSA (South Africa, Australia & Indonesia) to restrict the outflow of dollars, so that the burden on foreign reserves available with SBP could be reduced.

In this regard, the company highlighted that it has made noticeable progress as per the procurement plan and delivery schedule already shared with relevant GoP officials and it is already in final negotiations with two of the suppliers for import of coal from Afghanistan.

The contracts with the suppliers are expected to be finalized by July 6, 2022, and the delivery is scheduled from July 10, 2022, onwards.

According to CPHGC, all these actions are strictly in line with the instructions of GoP to import coal from Afghanistan as soon as possible, adding that from the facts it is evident that the Company is doing its part in a reasonable manner despite the current financial instability in local power industry. Based on the terms of the agreements proposed by the prospective Afghan Coal suppliers, daily coal quantity of around 5,000 tons will be delivered to the Company at the rate of Rs 72,000 per ton excluding GST and 95% of the total payment has to be processed at the time of its delivery and remaining after final SGS report (i.e. within 2 working days of the submission of final invoice).

Accordingly, the Company would require at least around Rs 425 million (including GST) on daily basis against daily delivery of 5,000 tons of coal on site from Afghanistan. Therefore, the company has requested CPPA-G to confirm the availability of required funds to CPHGC on daily basis and advance payment is requested for Saturday, Sunday and gazetted holidays.

CPHGC has asked CPPA-G to also share the re-payment schedule (dally basis) for Afghan coal procurement. Based on the confirmation provided by CPPA-G, the company would agree the terms with the coal suppliers and finalize their contracts, as in the absence of the confirmed repayment schedule from CPPAG it is highly likely that the company will default on its payment obligation to the Afghan traders and this supporting initiative of cheaper coal will be hampered abruptly as the investment of the traders dealing in Afghan coal is limited and in case of non-payment their working capital will be in default.

Accordingly, the company has requested CPPA-G to provide this confirmation with re-payment schedule of at least 30 days. Any delay in providing confirmation, on part of CPPA-G/ GoP will result in delayed delivery of the Afghan coal.

CPPA-G has allocated only Rs 17.775 billion from June 7 till June 30, June, 2022, against its firm commitment of a much higher amount as discussed in various meetings.

“It is a very unfavourable and highly unintended position for the company as the lower allocation of funds by CPPA-G has already increased the financial burden on the Company,” CEO said, adding that the commitment was made by CPPA-G in order to pay for the imported coal already delivered/ ordered. But such unsolicited acts of CPPA-G have put CPHGC in an unsupportive situation to meet its current financial & contractual obligations.

Further, the Company has to pay fee for O&M & CTS Contractors as the payments against the same are already pending for the past four months or more. The above mentioned funding requirement relates to the coal that has already been procured. In addition to this, two vessels are in transit and total funds of around Rs 11 billion are required for making payment against those shipments.

Therefore, the company again emphatically requests for cooperation at an extraordinary level and approached relevant Authorities/ Ministries/ Departments for a quick resolution of the alarming situation through allocation of maximum funds to CPHGC in order to ensure uninterrupted power supply to the national grid, to avoid contractual defaults and to establish a reliable supply chain for import of coal from Afghanistan.

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