Pak concedes to China's demand for revolving bank account

Pakistan has caved into China's demand for opening a revolving bank account that would partially save Chinese power plants from circular debt but it may cause concern among officials of the International Monetary Fund (IMF).

The decision was taken by the Economic Coordination Committee (ECC) of the cabinet on Monday. Finance Minister Ishaq Dar chaired the ECC meeting, reported The Express Tribune.

"The ECC approved a proposal of the finance ministry to change the title of the revolving fund account for CPEC independent power producers (IPPs) from Pakistan Energy Revolving Fund to Pakistan Energy Revolving Account," according to a statement by the Ministry of Finance.

The finance ministry informed the ECC that the title of the fund had been reviewed to bring it in conformity with the original CPEC agreement dated November 8, 2014.

Pakistan took eight years to implement the important clause and the delay not only caused friction in relations with China but also led to over USD 1 billion being stuck in arrears for Chinese companies.

However, the move may irritate the IMF that on the insistence of its largest shareholder – the United States – is pressing Pakistan against giving any preferential treatment to the Chinese companies. But having good relations with China has once again become critical after the government has not been able to satisfy the IMF.

The delay in the start of the ninth review talks with the IMF has again triggered a debate on the possibility of default, which Dar has strongly denied.

In late October, the ECC approved the setting up of the Pakistan Energy Revolving Fund to be operated by the Central Power Purchasing Agency-Guarantee (CPPA-G).

The Express Tribune reported at the time that the fund was not an alternative to the revolving bank account under the CPEC Energy Project Cooperation Agreement and that the Chinese would not accept the arrangement.

The ECC amended its decision on Monday after China refused to accept the previous arrangement. Unlike ensuring a bank credit line or providing additional money from the budget for the revolving account, the government has placed Rs 50 billion out of the already approved subsidy budget of Rs 180 billion that has been diverted towards the new energy account.

A monthly limit of Rs 4 billion has been imposed on withdrawal from the energy fund and the first tranche of Rs 4 billion was withdrawn and paid to Chinese firms in November, according to the officials.

The monthly payment of Rs 4 billion would not completely resolve the Chinese companies' problems. They will still get around Rs 10 billion less than the monthly bills, according to the officials.

Pakistan had committed to open a revolving fund that would have deposits equal to 21 per cent of the power generation cost. But the commitment was never honoured, according to The Express Tribune.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)