Govt to provide forex for CPEC debt repayment.

Byline: Shahbaz Rana

ISLAMABAD -- The government of Pakistan is legally bound to ensure the provision of foreign currency for debt repayment to Chinese financial institutions by investors of power plants set up under the China-Pakistan Economic Corridor (CPEC) and for the repatriation of profits by them, says a bilateral agreement.

Unlike other independent power plants that are operating under the IPP policy, the power plants being set up under the CPEC umbrella have been ensured preferential treatment.

The government of Pakistan and the government of China in November 2014 signed the agreement on CPEC Energy Projects Cooperation that gives legal cover to the rights of investors and their financiers.

A working by the Ministry of Planning showed that Pakistan would have to return $40 billion to China in the next 20 years on account of repayment of debt and dividends of the projects established under CPEC.

An amount of $7.5 billion will be repaid by the government of Pakistan against $5.9 billion in principal loans taken for infrastructure projects. Out of the remaining over $32 billion, nearly $20 billion will be paid to Chinese financial institutions on account of debt repayment by investors and $11.3 billion will be paid in dividends to the investors of power plants.

In response to an article appeared in The Express Tribune on Wednesday, the Ministry of Planning stated 'the energy projects are being executed purely under the Independent Power Producers (IPPs) mode and finances are mainly taken by private companies against their own balance sheets'.

It added that the dividends of the energy projects were also based on profit and loss and were subject to an individual company's financing policies, therefore, CPEC was not imposing any burden with respect to loan repayment and energy sector outflows.

The planning ministry did not contest the figures quoted in the story on account of capital outflow due to repayment of the debt taken for setting up the power plants and dividend payments.

The 2014 treaty binds the government of Pakistan to provide foreign currency to these investors.

Article 6 of the treaty says 'Pakistani party agrees to provide each year during project's operation period through the SBP, for all of the company's transactions related to the project that require foreign currency, in case such foreign currency is not available through authorised banks in Pakistan. Pakistani party commits initiating a mechanism for expeditious...