Power production contracts with Chinese companies need review, Pakistani minister says

Islamabad —Awais Leghari, Pakistan’s Minister for Power, says contracts with Chinese power providers that build and operate power facilities in Pakistan need to be rewritten.

“I think the terms and conditions that we already have with the Chinese as far as their IPPs [independent power producers] are concerned, they need another look,” Leghari told VOA in an interview this week.

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The electricity projects, most of which were completed within the previous decade, helped to put an end to hours-long outages. However, contracts oblige Pakistan to pay for the full generation capacity of any power plant, regardless of how much electricity is utilized. The failure to stimulate industrial growth, which may assist utilize greater power, and the inability to decrease transmission losses have left Pakistan with massive bills to pay for underutilized and wasteful power producing capacity, in addition to repaying project loans.

Independent power plants established by Pakistani businesses in the nation have contract conditions comparable to those of Chinese-run facilities. Experts believe Pakistan’s efforts to undertake an all-encompassing assessment of local and foreign-owned independent power plants demonstrate that Beijing does not want its enterprises singled out as troublesome, nor does it want to be the only one providing concessions to Islamabad.

Leghari is leading a power sector reform work committee formed during his recent trip to China. All independent power stations will be audited as part of reform initiatives to reduce power sector losses.

Experts believe Pakistan’s efforts to undertake an all-encompassing assessment of local and foreign-owned independent power plants in the coming days demonstrate that Beijing does not want its enterprises to be singled out as troublesome, nor does it want to be the only one providing concessions to Islamabad.

Leghari stated that the Chinese government and firms are already working with Pakistan to restructure its power sector debt and convert coal-fired power facilities to use local fuel.

“These are adjustments to the terms and conditions under which the Chinese IPPs work with us. Those will provide us with significant advantages in terms of [electricity] rate reductions,” the power minister added, referring to Pakistan’s attempts to lower increasing electricity bills for customers.

Islamabad owes almost $15 billion to Chinese power plant operators. It is attempting to reschedule payments in order to create financial breathing room and receive much-needed assistance from the International Monetary Fund.

Leghari and Finance Minister Muhammad Aurangzeb visited Beijing late last month to negotiate power sector debt relief.

The trip comes only days after Islamabad achieved a staff-level agreement with the IMF on a three-year, $7 billion financing package. The bank’s board must yet approve the transaction.

Leghari stated that China, like the IMF, seeks larger changes from Pakistan.

“China and the IMF want to look at the entire economic or power sector reform that we have already authored and embarked on,” Leghari added. “I think the more the confidence they have in our economic reform agenda, the better would be the response.”

Beijing has not responded officially to Islamabad’s request to reschedule its energy sector debt. However, Pakistan’s newspaper Express Tribune stated that it has decided to switch three Chinese-owned power reactors in Pakistan from imported to domestic coal.

Pakistan wants to save hundreds of millions of dollars every year by switching to domestic coal for electricity generation.

The shift may come at a heavy price. Experts warn Chinese investors attempting to collect payments may demand greater insurance premiums and profit margins if they expand mining operations, eroding Pakistan’s savings.

“It will be a win-win situation for everyone,” Leghari stated, dismissing the worries.

“Unless that isn’t there, people will not invest, lenders will not give money.”

Pakistan will also require infrastructure to transport local coal over long distances, and power plants may need to modify their technical designs to use Pakistani coal, which is known to be dirtier and less efficient than imported coal.

“There has been an overwhelming response to look into and test technical and financial feasibility on all aspects of coal conversion and reprofiling,” Leghari said, dismissing environmental worries about switching to local coal.

Leghari downplayed the potential of frightening Chinese investors as Pakistan attempts to examine prior contracts, saying Islamabad values its relationships with investors.

“Whatever will happen, with whomever, will be with mutual consent,” he assured us.