ISLAMABAD: Pakistan and China have formally started talks on reduction in profits on Chinese power plants established by Chinese companies after the conclusion of deals with Independent Power Producers (IPPs) and reduction in Return on Equity (RoE) of public sector power plants, well-informed sources told Business Recorder.

Earlier, the government had decided that being a very sensitive matter, Prime Minister Imran Khan and Chief of Army Staff, Qamar Javed Bajwa would raise this issue with the Chinese leadership. It was expected that a deal will be struck during the visit of Chinese President last year but his visit was postponed due to Covid-19.

The sources said Minister for Power, Omar Ayub Khan had raised the issue of Chinese power projects with the Chinese ambassador who advised the Minister to directly take up this issue with the Chinese companies which have established or are establishing power projects.

The government publicly refrains from talking about power projects of 16,000 MW under China- Pakistan Economic Corridor (CPEC), of which 6,500 MW of the projects are in the pipeline.

The authorities had taken up a request with the Chinese leadership in 2020 requesting an extension in the debt servicing period for the first chunk of about10,400 MW plants to 20 years from existing 10 years and reduce the interest rate from Libor plus 4.5 per cent to Libor plus 2 per cent.

The authorities have now interacted with the Chinese authorities and requested for revision in debt service period so that the burden of debts may be extended for ten more years.

The sources said, the Chinese have advised Pakistani authorities to take some action for improvement in power sector system. However, Pakistani authorities have argued that the government has already taken appropriate measures to reduce losses and improve recovery.

According to sources, the officials who are aware of current contracts, expect staggering the Commercial Operation Dates (CODs) of 6,500 MW CPEC projects in pipeline.

An official who remained associated with power sector for a couple of years, told this scribe that the impact of renegotiations with the Chinese will be about $ 500 million and if the Chinese are requested they would give this amount to Pakistan under another head.

As Chinese companies had raised loans from banks, now they will place their case with the top government authorities before responding to Pakistan's request, the sources maintained.

The government recently signed deals with 47 IPPs, the financial impact of which will be around Rs 836 billion in 20 years. Its impact on consumer tariff is projected at Paisa 37 per unit.