The government approved the changes to the energy agreements

Islamabad:

Pakistan on Thursday approved amendments to energy deals signed with Chinese power plants to end arbitrary sanctions, but postponed a decision to place a quadrinational natural gas pipeline project under the special foreign investment protection regime.

The Economic Coordination Committee (ECC) of the cabinet has authorized the power ministry to sign supplementary power purchase agreements with Chinese power plants set up under the China-Pakistan Economic Corridor (CPEC). According to these agreements, Pakistan will not impose liquidated damages on Chinese factories for non-supply of electricity due to lack of fuel.

In return, the Chinese investors will not claim the return on equity and the cost of working capital component of the idle payments for the period they were unable to supply electricity. A finance ministry statement said that a summary of the Department of Electricity approving the authorities to settle capacity reduction issues of imported coal-based projects and the subsequent execution of side agreement with Port Qasim Electric Power Company (PQEPCL) was discussed by the ECC.

After detailed discussion, it approved the settlement of the matter with PQEPCL as suggested by the Electricity Directorate. Due to Pakistan’s failure to provide foreign exchange for the purchase of fuel, these power plants were unable to generate electricity. Instead of admitting its own fault, the government sanctioned Chinese power plants for not supplying electricity.

It imposed a fine of over Rs 21 billion on PQEPCL for not supplying electricity for 82 days despite the fact that the plant could not operate due to the fault of the government.

The ECC authorized the energy ministry to sign agreements with Chinese power plants on the basis that if foreign exchange was not available for the supply of imported coal, the government would not deduct the purchase price of the generation capacity or impose liquidated damages for the period during which remained the works is not available due to lack of fuel.

For such a period, Chinese power plants will waive their right to claim return on equity and working capital costs of idle payments.

Also, under the new agreement, these power plants will be allowed to operate for the same additional days that they will be shut down due to lack of fuel supplies. Through a side agreement, the duration of the power purchase agreements signed with the CPEC power projects has been extended to the extent that these units remain non-functional.

Sponsors of Chinese power plants had called for the government to declare a political default to lift sanctions imposed due to fuel shortages. However, the government did not agree to the demand because of its impact on the country’s creditworthiness.

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The Chinese did not accept Pakistan’s proposal to treat fuel unavailability as another force majeure and insisted that the government should treat it as Pakistan’s force majeure policy, according to energy ministry sources. Finally, both parties have agreed on broader principles and a side agreement between the Central Power Purchase-Guarantee Authority (CPPA-G) and the Port Qasim Power Company has already started.

TAPI pipeline

The finance ministry said a summary was discussed at length to approve the TAPI project as a Special Investment Incentive Package under the Foreign Investment Promotion and Protection Act (FIPPA).

The CYC observed that it was a much-needed project and should be started without delay.

“The ECC also observed that the proposal to include the project in FIPPA required further discussion and consideration of legal aspects, incentives and concessions,” it said. The energy ministry had proposed to include the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project in the special FIPPA.

Sources said the CySEC did not agree to the proposal due to restrictions imposed by the International Monetary Fund (IMF) on the granting of new tax exemptions and the far-reaching implications for the country’s overall investment regime. So far, only the Reko Diq copper and gold mine project is covered by the special legal status.

Pakistan has already ensured the protection of Turkmenistan’s investments with a state guarantee under the Host Government Agreement, which was signed in 2016 along with the Natural Gas Pipeline Framework Agreement.

Turkmenistan and Pakistan signed on June 9, 2023 the Joint Implementation Plan to accelerate work on the TAPI pipeline project. A gas sale-purchase agreement was signed during the tenure of the Pakistan Peoples Party (PPP)-led government a decade ago.

The ECC also considered a brief of the Ministry of Overseas Pakistanis and Human Resource Development for approval of the budget for the Employees’ Old Age Benefit Institution (EOBI).

It was informed that the collection of EOBI has been stagnant for the past few years but has recently registered a significant increase of around Rs 100 billion. The ECC appreciated EOBI for its good performance and asked it to strictly follow the fiscal calendar and prepare a long-term plan to clear pension dues worth Rs 2 trillion, according to the finance ministry. The forum approved the proposed budget for the agency.

Published in The Express Tribune, December 29^u2023.

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