By Sarah Zaman
ISLAMABAD – Pakistani Energy Minister Awais Leghari says contracts with Chinese power producers that build and operate power plants in Pakistan need to be revised.
“I think the terms we already have with the Chinese as far as their IPPs (independent power producers) are concerned need to be re-examined,” Leghari said. VOA in an interview this week.
The power projects, mostly built in the last decade, have helped end hours-long blackouts. However, the contracts require Pakistan to pay for the entire generating capacity of each power plant, regardless of how much electricity is consumed. By failing to spur industrial growth that could help harness additional power and reducing transmission losses, Pakistan now faces huge bills as it has to pay for unused and wasted power generation capacity in addition to repaying project loans.
The independent power plants built by Pakistani companies are also subject to similar contract terms as the Chinese plants. Experts say Pakistan’s efforts to conduct a comprehensive audit of the independent power plants, both domestically and foreign-owned, show that Beijing does not want its companies to be seen as problematic, nor is it alone in making concessions to Islamabad.
Leghari heads a working group on energy sector reform, formed after his recent trip to China. Reform plans to reduce losses in the energy sector include an audit of all independent power plants.
Experts say Pakistan’s efforts to conduct a comprehensive audit of all independent domestic and foreign-owned nuclear power plants in the coming days show that Beijing does not want its companies to be exposed as problem entities, nor does it want to be the only country to make concessions to Islamabad.
According to Leghari, the Chinese government and Chinese companies are already negotiating with Pakistan on restructuring the energy sector’s debt and converting coal-fired power plants to domestic fuel.
“These are changes in the terms of cooperation between the Chinese IPPs and us. These would bring us significant benefits in the form of (electricity) tariff reductions,” said the energy minister, referring to Pakistan’s efforts to reduce skyrocketing electricity prices for consumers.
Islamabad owes Chinese power plant operators more than 15 billion dollars. The government wants to create financial breathing room through debt restructuring and thus receive urgently needed funds from the International Monetary Fund.
Leghari and Finance Minister Muhammad Aurangzeb traveled to Beijing late last month to discuss debt relief for the energy sector.
The trip came days after Islamabad reached a staff-level agreement with the IMF for a three-year, $7 billion lending program. The bank’s board still has to approve the deal.
Leghari said China, like the IMF, wants more comprehensive reforms from Pakistan.
China and the IMF “want to examine the entire economic and energy reform that we have already initiated and started,” Leghari said. “I think the more confidence they have in our economic reform agenda, the better the response will be.”
Beijing has not commented publicly on Islamabad’s request to restructure its energy debts, but Pakistani daily Express Tribune reported that it had agreed to convert three Chinese power plants in Pakistan from imported coal to domestic coal.
Pakistan hopes to save hundreds of millions of dollars annually by switching to domestic coal for electricity generation.
The change could come at a high cost. Experts say Chinese investors struggling to collect payments could demand higher insurance premiums and profit margins if they want to expand their mining operations, cutting into Pakistan’s savings.
“It will be a win-win situation for everyone,” Leghari said, dismissing the concerns.
“If that is not the case, people will not invest and lenders will not give money.”
Pakistan will also need infrastructure to transport domestic coal over long distances, and power plants may need to be modified to use Pakistani coal, which is known to be more polluting and less efficient than imported coal.
“There has been an overwhelming response to look at all aspects of coal conversion and reprofiling and to review the technical and financial feasibility studies,” Leghari stressed, while dismissing environmental concerns about the switch to domestic coal.
Leghari played down the possibility of scaring off Chinese investors as Pakistan seeks a review of past deals, saying Islamabad cares about its relationship with investors.
“Whatever happens, with whomever, it will be by mutual consent,” he said.
The News Lens was authorized to publish this article by Voice of America.
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TNL Editor: Kim Chan (@thenewslensintl)
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