KARACHI: Pakistan’s growing power sector payment arrears and the devaluation of the Pakistani rupee is becoming a challenge for Port Qasim Electric Power Company, a senior Chinese official said on Thursday, outlining growing problems for an already troubled power sector.

The new government of Prime Minister Imran Khan is trying to clear power sector government payment arrears amid warnings by power producers that they could go out of business if they are not paid.

Vast Chinese investment has helped drastically reduce power outages, lifting economic growth, but years of mismanagement has led to accumulated power sector payment arrears, known in Pakistan as “circular debt,” of more than Rs.600 billion, which the government says it plans to cut down to Rs.225 billion by December 31, 2019.

Independent power producers angry with late government payments have warned of a crisis, while economists fear rising circular debt will further widen Pakistan’s yawning fiscal deficit, a key part of ongoing bailout talks with the International Monetary Fund (IMF).

“We all know that circular debt in Pakistan’s power sector is very challenging issue,” Sheng Yuming, Chairman of Power China Resources, a parent company of Port Qasim Electric Power Company, said at a press conference on Thursday. “Port Qasim power plant is facing challenging problem of payment arrears from the Pakistan. We have around $150 million late payment.”

The $2 billion Port Qasim power plant is an early harvest 2x660 coal-fired project that started power generation in 2017 and has so far produced 10 billion kilowatt hour (kWh). It currently supports nearly 10 percent of the nation’s power consumption.

Since 2015, China has invested around $62 billion in Pakistan’s energy and infrastructure sectors under the China Pakistan Economic Corridor. Chinese officials hope that Pakistan, which currently faces power shortage, will have surplus energy in the next three years.

The Port Qasim power plant utilizes 4.1 million tons of coal, mostly imported from South Africa, but due to late payments from the government, producers say they are facing major problems.

“We fear the risk of the delay in payment every day; and to cope with this issue we are trying our best to generate more power and try to get more payment of tariff timely,” Yuming said. “As you know that this is a power plant project, we have to import coal from the international market. And also we have to repay the debt to the financing banks. So the delay in payment of tariff is a big issue for us every day.”

“As for the delayed payment tariff bill, our team have coordination with the government authorities every working day and the officials are very friendly, [they] tell us that the difficulties they are facing and (we) fully understand that,” Yuming added.

Yuming called for strengthening coordination and communication among Pakistani authorities “so that they can know well about our power generation and also procurement plan.”

Pakistan has long been bedevilled by electricity shortages, with power outages crippling industries and economic growth, as well as stoking voter anger in the mainly Muslim nation of 208 million people.

Another problem for Chinese investors is the Pakistani currency, which has devalued by around 34 percent since 2017.

Yuming said post devaluation losses up until October 2018 stood at $20 million.

“To be frank due to the devaluation of rupee against US dollar have given us a lot of losses,” Yuming said. “But the loss due to the rupee devaluation would be undertaken by the enterprises themselves as per the agreement we signed with the government of Pakistan.”

“Depreciation currency cannot be transferred to Pakistan,” he said, adding that “the depreciation trend is short term and temporary as things would go back to normal.”