Pakistan Likely to Allow Chinese IPPs to Declare Force Majeure During Coal Shortage

Pakistan could allow Chinese coal power plants to declare periods of coal shortage as Other Force Majeure Events (OFME). This will likely be formalized during the upcoming Energy Planning Expert Panel (EPEP) meeting of the China-Pakistan Economic Corridor (CPEC). The objective of this meeting is to evaluate progress and facilitate the smooth execution of energy projects under the CPEC umbrella, reported Business Recorder. Pakistan has taken steps to address payment challenges by establishing the Pakistan Energy Revolving Account (PERA) with the State Bank of Pakistan (SBP) to ensure timely payments to CPEC Independent Power Producers (IPPs). However, recent inquiries from the Chinese side seek clarification on financial security provisions and operational procedures under PERA. Pakistan has reassured that the Ministry of Finance will allocate annual budgetary provisions to facilitate payments to CPEC IPPs. Funds are directly transferred to IPPs’ accounts on a monthly basis, bypassing the need for bank guarantees or Letters of Credit (LC). Pakistan is willing to amend agreements if lending banks endorse this arrangement. China has raised concerns about foreign exchange constraints affecting coal procurement for power projects. Pakistan has proposed treating periods of coal shortage as Other Force Majeure Events, similar to past arrangements with IPPs facing fuel scarcity. China has agreed to address this in consultation with CPEC IPPs.