China asks Pakistan for $1.5b payment

China has expressed serious reservations about overdue payments of $1.5bn to the Chinese independent power plants (IPPs), installed under the China-Pakistan Economic Corridor (CPEC), as well as currency exchange restrictions imposed by the State Bank of Pakistan, which hamper coal import.

Special Assistant to Prime Minister (SAPM) (Coordination) Syed Tariq Fatemi, in a letter to the Planning Commission on March 13, 2023, conveyed that China’s Charge d’ Affaires Pang Chunxue met him on Monday where she voiced concern over the CPEC power projects.

“Overdue payments to the Chinese IPPs currently stand at $1.5 billion. This is causing huge concern among Chinese businesses,” Fatemi stressed, adding that Pang also complained that Chinese power plants at Hub, Sahiwal and Port Qasim were facing currency exchange restrictions, which was causing difficulty in coal import.

“These power plants require a specific-grade coal for electricity production. If the same is purchased from the local spot market, then Nepra requires that the price should not be higher than the price of imported coal, which is not feasible due to exchange rate fluctuation/ rupee devaluation,” said the SAPM.

“Capacity payment deduction still exists despite assurances given in the past; as a result these power plants are being penalised for not operating at full capacity.”

Pang clarified that the power plants were running below full capacity owing to the difficulty in purchasing the requisite amount of coal for power production.

She pointed out that there were still gaps between the revolving fund established by the Pakistan side and the revolving account agreement signed by the two countries.

Due to import curbs, many Chinese companies were encountering difficulties in customs clearance at Karachi Port, the letter quoted Pang as saying.

She suggested that their concerns could have been discussed in meetings of a joint committee, a forum specifically established by the prime minister to resolve the issues facing the Chinese IPPs.

However, the committee, which was to meet every two weeks, has not had any meeting since the inaugural huddle in December last year.