New Delhi: An internal report submitted recently to Pakistan’s Prime Minister Imran Khan has made sensational allegation that China may made huge profits at the cost of its all-weather ally from CPEC projects.
The reality investments in the China Pakistan Economic Corridor (CPEC) has been revealed in a 278-page report titled “Committee for Power Sector Audit, Circular Debt Reservation, and Future Road Map” which lists malpractices to the tune of $ 625 million in the independent power generating sector, with at least a third of it relating to Chinese projects, ET has learnt.
What clearly emerges is that while Pakistan has grown increasingly dependent on China in myriad ways, the $ 62 billion CPEC, has been mired in insufficient transparency.
The nine-member committee, which surprisingly included a member from ISI, in its report put the blame of losses on violation of Standard Operating Procedures that included cost of installation of Independent Power Projects (IIPs), government agreements, alleged embezzlement in fuel consumption, power tariff, guaranteed profit in dollars, and certain conditions of power purchase, ET has learnt.
The report also reveals that the Huaneng Shandong Ruyi (Pak) Energy (HSR) or the Sahiwal project and the Port Qasim Electric Power Company Limited (PQEPCL) coal plants under the CPEC inflated their set-up costs to cover corruption payments to Pakistani political class.
The two projects examined by the Pakistani Experts’ Committee were worth $ 3.8 billion at the time of their launch. The Committee found overpayments of Pakistan Rs. 483.64 billion, which amounts to $ 3 billion at current rates of exchange. This includes overpayment of Pakistan Rs. 376.71 billion (approximately US$ 2.3 billion) to HSR and Pakistan Rs. 106.93 billion (approximately US$ 672 million) to PQEPCL on account of excess set-up cost, excess return due to excess set-up cost in 30 years, and excess return due to miscalculation in Internal Rate of Return (IRR).
There are allegations that pay offs were made by China to the top military leadership in Pakistan, including, the current head of the CPEC Authority Lt. Gen. (Retd.) Asim Saleem Bajwa.
According to the Committee’s report, “excess set-up costs of Pakistani Rs. 32.46 billion (approximately US$ 204 million) was allowed to two coal-based [Chinese] plants due to misrepresentation by the sponsors regarding deductions for the ‘Interest During Construction’ (IDC) as well as non-consideration of earlier completion of plants.”
According to the report, IPPs were earning an unbelievable 50-70 per cent annual profit, in contrast to 15 per cent limit set by the National Electric Power Regulatory Authority (NEPRA) which led circular debt to balloon to Pakistani Rs. 1800 billion due to wrong agreements. The report recommends to the Pakistani government to revoke the practice of capacity payments based on ‘Take or Pay’ with the owners of the IPPs and recover Pakistani Rs.100 billion.
The Committee has also recommended that Pakistani Rs. 32.46 billion (approximately US$ 204 million) be deducted from the project cost of PQEPCL and HSR; the return payment formula be corrected to reflect actual construction time; and tariff of PQEPCL and HSR be adjusted accordingly.
It claimed that the IPPs owners showed the extra cost to get extra tariff at the time of the contract, with NEPRA failing to check the veracity of the cost.IPP owners were also accused of earning “unjust” profits in fuel consumption whereas NEPRA never gauged the efficiency of the consumption. The owners had also resisted signing an agreement for a regular audit, the report alleged.
Meanwhile, the International Monetary Fund has been pushing Pakistan’s officials to raise taxes and power tariffs.