Islamabad:
The Special Economic Zone (SEZ) at Rashakai, a priority zone under the China-Pakistan Economic Corridor (CPEC), has applied for licenses from the National Electricity Regulatory Authority (Nepra) for distribution and supply of electricity, but the issue remains unresolved.
At a recent meeting of the Cabinet Committee on Chinese Investment Projects (CCOCIP), the Department of Energy said that Chinese investors were asking for a “group price” of electricity instead of an industrial tariff.
However, the pool price would require a government subsidy, resulting in higher consumer tariffs for SEZs and potentially discouraging investment and relocation of industrial units. The CCOCIP directed the Directorate of Power to resolve the issue of power supply for Rashakai SEZ in consultation with Nepra and the Board of Investment (BOI).
The cabinet was informed that the Chinese developers of Rashakai SEZ had proposed revisions to the existing incentives to attract Chinese companies to relocate their industrial units to Pakistan.
The proposed incentives included exemption from duty on imported raw materials and semi-finished goods for value addition and changes in the policy of one-time exemption on import of capital goods from exemption for a certain period.
The BOI informed the committee that the fiscal package had been shared with the Federal Board of Revenue (FBR) and certain tax and customs duty exemptions had been granted under the Finance Act 2022.
The CCOCIP emphasized the importance of developing a fiscal incentive package for CPEC SEZs based on regional best practices and highlighted the importance of export-oriented industrial clusters for export growth.
The cabinet was also informed that the Chinese government and independent power plants (IPPs) operating under CPEC had refused to accept the amended revolving bill amid rising cyclical debt.
The outstanding arrears of CPEC IPPs have crossed Rs 500 billion, posing a major hurdle to achieving financial closure for the 1,124 MW Kohala and 700 MW Azad Pattan hydropower projects.
The Directorate of Power informed the cabinet committee that the Directorate of Finance and the Central Power Market Guarantee Agency (CPPA-G) had created a modified revolving account but it was not approved by the CPEC IPPs and the Chinese government.
Although the revolving account had been opened, the Chinese were reluctant to acknowledge it. The Energy Directorate clarified that they were currently making payments of Rs 4 billion per month, which is 87% of the total payment, which was the maximum amount possible under the current circumstances.
During the discussions, CCOCIP highlighted the need to adopt dynamic tariffs to stimulate electricity demand during the winter months and fully utilize the available electricity resources. However, the Electricity Department highlighted practical challenges, including evacuation issues through the transmission system, and hinted at plans to introduce a project to develop transmission infrastructure.
CCOCIP tasked the Directorate of Electricity to develop a sustainable plan to boost electricity demand in the northern region during winter and transition from natural gas consumption to electricity.
He sought a detailed presentation on overdue payments to CPEC IPPs from the Electricity Directorate.
The ministerial committee, after reviewing a summary, decided to continue implementing specific measures to restore the confidence of Chinese and other investors.
Published in The Express Tribune, May 12u2024.
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