Pakistan cancels Chinese power project

Reports that the Rahim Yar Khan power project is being cancelled come as the Pakistani prime minister conducts a review of projects deemed to have political undertones

The Pakistani government has informed China that it wishes to cancel the 1,320MW Rahim Yar Khan power project, one of the major power generation projects within the framework of the China-Pakistan Economic Corridor (CPEC), according to local media sources. 

According to local press, the official reason cited is that Pakistan has sufficient existing and planned electricity generation sources for the next few years. However, the Rahim Yar Kahn project was promoted by the government of former Prime Minister Nawaz Sharif, and current Prime Minister Imran Khan has been conducting a review of what are deemed to be "politically motivated" public sector development programme (PSDP) projects.

The 8th CPEC Joint Coordination Committee (JCC) meeting was held in Beijinbg on 20 December, with a Pakistani delegation led by minister for planning and development Makhdoom Khusro Bakhtyar. It was at this meeting that the Pakistan side formally requested that the 1,320 MW plant be removed from the CPEC list.

The project was planned as an imported coal-based plant by Quaid-i-Azam Thermal Company of the Punjab government, with private sponsors, and in 2017 was added to the list of priority projects within the CPEC.

The China-Pakistan Economic Corridor, running from Gwadar Port in Baluchistan all the way to Xinjiang Province, is an important part of the Belt and Road initiative. The CPEC was agreed between the two countries in 2013, with ambitious plans for US$60 billion worth of roads, ports, pipelines and power plants.

The United States has been highly critical of the CPEC, characterizing it as a debt trap which will over time increase China's political influence in Pakistan. When Imran Kahn became the new prime minister in August 2018, the US hoped to see a change in policy, but in spite of reviewing some CPEC projects Khan has made it clear that he remains fully committed to CPEC.

Another important power project with Chinese backing, the 330MW Thar Energy Limited (TEL) power plant, seems to have a different fate, reaching financial close on 20 December, at a signing ceremony in Beijing on the sidelines of the JCC meeting.

TEL is sponsored by Pakistan's largest chemical fertilizer company, Fauji Fertilizer Company Limited. FFCL has a 30% equity stake in TEL, with 60% owned by Pakistani firm Hub Power Company, and 10% by China Machinery Engineering Company unit CMEC TEL Power Investments (CTPIL).

China Development Bank (CDB) has been engaged as the lead arranger for financing from China, and Habib Bank Limited as the lead arranger for the local financing.

Unlike Rahim Yar Khan, TEL uses local coal sources. It is a mine-mouth lignite-fired power plant, one of the first power projects to utilize indigenous lignite coal from Thar Coal Block II.

The engineering procurement and construction (EPC) contractor on the project is China Machinery and Engineering Corporation (CMEC), which has started preliminary activities on site to expedite the project construction and achieve the commercial operation date (COD) during the first half of 2021.

Fauji Fertilizer Company Limited is the largest urea manufacturer in the country with an annual production of over 2 million tonnes through its three plants.

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Date

23 Jan 2019

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