Chinese power companies accuse Pakistan govt. of defaulting on payments

At least two Chinese power companies have served a default notice to Pakistan’s Central Power Purchasing Agency (CPPA) over billions of dollars in dues. The Chinese independent power producers (IPPs) say that by not paying billions of rupees of dues, it is Islamabad that has defaulted.

The Port Qasim Electric Power Company Ltd (PQEPC), owned by China’s Sinohydro Resources Ltd and Qatar’s Al Mirqab Capital Ltd, claims that the CPPA owes it Rs 77.3 billion or $263.5 million in unpaid dues for power. The company says that as the deadline of May 31 for the principal payment of $73.6m has passed, the Government of Pakistan has defaulted.

Similarly, Engro Powergen Thar Ltd (EPTL) says that the CPPA owes it Rs 65.50 billion for the power purchased. It also demanded Rs 28.70 billion before May 31. EPTL says that it may shut down operations due to the “severe liquidity crunch” because of which it is unable “to settle its liabilities with both lenders and suppliers”, reported the Dawn.

Despite the diplomatic relationship between the two countries recounted as an all-weather friendship, Pakistan and China have experienced major run-ins over CPEC power projects. In March this year, the Chinese embassy in Islamabad asked Pakistan to release overdue payments of $1.5 billion to the Chinese power plants. It also asked the Pakistani government to loosen foreign exchange requirements so that the Chinese companies could be paid in foreign exchange.

The demands from the Chinese power companies will only add to Pakistan’s financial crisis – mounting inflation, food shortages as well as shrinking foreign exchange reserves, even as the country currently deals with a mass uprising against the army.

This is not the first time that Pakistan is facing demands from dozens of Chinese companies that have flooded the country because of the $64 billion China-Pakistan Economic Corridor (CPEC). Islamabad has had to deal with blackmail, threats, stoppage of work from Chinese companies many times.

Just last month, the China Machinery Engineering Corporation (CMEC), a Chinese company extracting coal in Thar, Sindh province, reduced its production by half due to unpaid debt of over $60 million. It has also threatened that it may completely cease operations within a month as it has not been paid since May 2022.

Coal extracted by the Chinese company is used by the Sindh Engro Coal Mining Company (SECMC) to generate power. Under the agreement, the Sindh backed power producer has to pay the Chinese company in dollars. Owing to the country’s precarious foreign exchange situation, the government has not allowed SECMC to make dollar-payments to the Chinese firm.

The Sindh Energy Minister, Imtiaz Ahmed Shaikh says that he has written a letter to Finance Minister Ishaq Dar requesting him to release the foreign exchange payment to the Chinese mining company.

The two nations have also faced considerable problems over the Dasu hydro-power project, located in Khyber Pakhtunkhwa, which had witnessed a major militant attack in July 2021 on Chinese engineers. Citing inadequate security as nine Chinese engineers had died in the attack, Chinese firms stopped work at the project site and asked for a hefty compensation from Islamabad. The project became global news once again this year after Pakistani workers wanted to kill a Chinese manager for alleged blasphemy. The Pakistani military had to move in to secure the Chinese and salvage relations with Beijing.

Also read: Dasu power project yet to restart as Pakistan falters in paying Chinese investors