ISLAMABAD: The Economic Coordination Committee of the cabinet approved on Thursday arrangements for setting up revolving funds backed by sovereign guarantees to ensure uninterrupted payments to Chinese sponsors of energy projects under the $46 billion China-Pakistan Economic Corridor.

The meeting was presided over by Finance Minister Ishaq Dar.

An official statement confirmed that the committee had approved a proposal of the Ministry of Water and Power about a supplemental agreement for projects in the private sector under the CPEC framework accord.

“Under the arrangement a revolving account (equal to 22 per cent of monthly invoicing) shall be opened and maintained by the power purchaser for which the Ministry of Finance will provide the guarantee to fund such revolving account in case the power purchaser fails to place and or maintain the required fund in such account,” it said.

The step will ensure uninterrupted payments to Chinese sponsors of all energy projects

A senior government official said the facility of supplemental agreement for a revolving fund equal to 22pc of monthly bills was originally provided for coal-based power projects of Chinese companies in April 2015, but had now been extended to all power projects because of uncertainties created by the circular debt and concerns expressed by Chinese investors that power companies in Pakistan may not be in a position to make full payments.

He said the since the ECC had approved the proposal specifically for coal-based power projects under the CPEC signed on Nov 8, 2014, as such the facility of revolving account would be limited to coal-based projects only.

But the projects under the CPEC agreement included other power projects which now required to be implemented on a priority basis and, therefore, the call for providing revolving account for all power projects. The ministries of water and power and finance did not explain the amounts involved to ensure 22pc monthly payments through revolving accounts to be backed by sovereign guarantees.

The revolving account facility and supplemental agreement would now be extended to all the projects enlisted or subsequently included in the CPEC agreement by any amendment through mutual consent of the parties after approval of competent forums.

The ECC also approved the draft supplemental agreement for CPEC projects processed by the PPIB with some changes.

For example, the change in Article 1 of the agreement will now state that if, on the date of, or at any time after the signing of the supplemental agreement, the government grants to any company, any concessions, incentives or more preferable terms and conditions under applicable policy in relation to subjects specified under the CPEC agreement, the government will agree to grant the company such preferable concessions, incentives of terms and conditions.

Likewise, Article 2 will confirm that revolving account (equal to 22pc of monthly invoicing) for the CPEC power projects shall be opened and maintained by the power purchaser for which the Ministry of Finance will provide the guarantee to fund such revolving account in case the purchaser fails to place and or maintain the required funds in such account. Also, Article 7 will read that the term of supplemental agreement shall be commensurate with the term of implementation agreement (IA).

The sources said the draft supplemental agreement submitted by AEDB (Alternative Energy Development Board) linked its validity to the term of IA or till the project continued to be financed by Chinese banks while the term of supplemental agreement already approved by the ECC on April 23 last year was linked with the term of IA only and the approved agreement has also been signed with project sponsors – the Sindh Engro Coal Mining Company and Port Qasim Electric Power Company.

The ECC approved a proposal of the Federal Board of Revenue regarding continuation of reduced rate of 0.3pc withholding tax on non-filers under section 236P of the Income Tax Ordinance, 2001, till Feb 29.

The committee approved reallocation of 60MMCFD Mari shallow gas to its original allotees (Fauji Fertilisers, Fatima Fertilisers and Engro Fertilisers) with effect from Feb 22.

The meeting also approved a proposal submitted by the Ministry of Industries and Production for granting waiver of outstanding amount of Rs51.50m as loan from the federal government to Shahdadkot Textile Mills as the unit has been liquidated and the liquidator has settled the claims of preferential creditors as per availability of funds/sales proceeds. The approval for the liquidation process was granted by the Sindh High Court.

On a proposal moved by the Ministry of Petroleum and Natural Resources for deregulation of CNG prices, the meeting constituted a committee comprising the special assistant to the prime minister on human rights; petroleum, finance and law secretaries; and chairmen of FBR and Ogra to look into its all aspects and give its recommendation to the ECC for a decision.

Published in Dawn, February 19th, 2016