Government to Renegotiate CPEC deals: IMF

The International Monetary Fund (IMF) has demanded from Pakistan’s government to re-consult the China-Pakistan Economic Corridor (CPEC) energy deals before the payments of 300 billion to the Chinese power plants which has put Islamabad into tight position.

These power plants were established under the 1994 and 2002 power policies under the CPEC framework agreement which IMF is asking to renegotiate. The IMF’s demand came after China had refused in the past to reconsider the terms of agreement with the independent power producers (IPPs). Sources have reported that there is a need to reopen the deals because there are chances that China might have been overcharging Pakistan. Mohammad Ali’s report on the IPPs had spotted the overpayment of about 41 billion to the Chinese IPPs.

IMF’s Resident Representative, Esther Perez has emphasized on the need for equal treatment of all power holder stakeholders due to limited fiscal space this year. He said that an important principal in undermining these reforms is that all stakeholders must contribute equally to reduce the circular debt between government, IPPs and consumers while also providing protection to the most vulnerable consumers. She said that Pakistani authorities should be aware of limited fiscal space available to clear any outstanding arrears of the sector stakeholders, so there must be potential of lower capacity payments for electricity so that burden must be shared by all stakeholders. Perez further added that a number of partners of Pakistan were supporting those reforms, including the World Bank and IMF.

Finance ministry sources said that the global lender had previously objected on payment during February, as well as last week, of Rs 50 billion to Chinese IPPs without renegotiation. Prime Minister Shehbaz Shareef  had announced that the Chinese IPPs would be given Rs50 billion to ensure fuel supplies. The government had also released Rs50 billion for the Power Division under general subsidy claims in July, who in return made the payment to Chinese IPPs. IMF asked Pakistan to provide the list of power plants that received this amount, after getting to know about this indirect payment. IMF objections on the payment of outstanding dues of this multi-billion dollar project may jolt Pakistan’s efforts to address the Chinese concerns over the slow down of CPEC over the past four years.

So far an investment of $10.2 billion on 11 Chinese IPPs, with a generation capacity of 5320 MW are operational. Out of these 2000MW have been shut due to depletion of coal inventories. Out of 340 billions the government has cleared almost 300 million because the Chinese IPPs had threatened to stop their plants. The renegotiation will save Rs 770 billion in 20 years time frame. The IMF wants payments in cash and treasury papers.