The Economic Coordination Committee (ECC) of the cabinet has granted authorization to the energy ministry for signing supplementary power purchase agreements with Chinese power plants operating under the China-Pakistan Economic Corridor (CPEC).
Key Agreements and Settlement Principles
Under these agreements, Pakistan has agreed not to impose liquidating damages on Chinese plants for non-supply of electricity due to fuel unavailability. In return, Chinese investors will refrain from demanding the return on equity and cost of working capital component of idle capacity payments during periods of electricity non-supply.
Discussion on Settlement of Capacity Deduction Issues
The ECC discussed a summary presented by the Power Division, focusing on the settlement of capacity deduction issues related to imported coal-based projects. The discussion specifically addressed a side agreement with Port Qasim Electric Power Company (PQEPCL).
Approval of Settlement Proposal
After thorough deliberation, the ECC approved the settlement proposal with PQEPCL, aligning with the recommendations of the Power Division. The issue arose due to Pakistan’s failure to provide foreign exchange for fuel purchases, leading to the inability of these power plants to generate electricity.
Penalties Imposed by the Government
Previously, the government imposed penalties, including a fine of over Rs21 billion on PQEPCL, for non-provision of electricity for 82 days. It’s worth noting that the plant couldn’t operate due to the government’s failure to provide necessary support.
Principles of New Agreements
The ECC has authorized the energy ministry to enter into agreements with Chinese power plants based on specific principles. These include the government not deducting the capacity purchase price or imposing liquidating damages in cases where foreign exchange is unavailable for procuring imported coal.
Waiver of Rights and Additional Operational Days
During periods of fuel shortages, the Chinese power plants will waive their right to claim the return on equity and cost of working capital component of idle capacity payments. Additionally, the new agreements allow these power plants to operate for an equivalent number of additional days as the duration they remain non-operational due to fuel shortages.
Extension of Power Purchase Agreements
Through a side agreement, the duration of power purchase agreements with CPEC power projects has been extended. This extension aligns with the periods during which these plants remain non-operational due to fuel supply limitations.
Sponsor Demands and Government Response
Sponsors of the Chinese power plants had initially demanded a political default declaration to waive penalties resulting from fuel shortages. However, the government did not accede to this demand, citing potential implications for the country’s credit rating.
Source: tribune.com.pk
