The Ministry of Energy has requested Rs48 billion from the national budget to address the overdue payments for the China-Pakistan Economic Corridor (CPEC) energy projects.
Despite this request, the outstanding dues have escalated to Rs487 billion.
This request is a segment of the Ministry’s total demand for Rs1.234 trillion in subsidies for the fiscal year 2024-25, with the allocation for CPEC energy projects constituting only 4% of the overall subsidies.
According to sources within the finance sector, the Economic Coordination Committee of the Cabinet and the federal cabinet will decide the annual funding for the CPEC energy dues based on the Energy Ministry’s requisition.
The Pakistan Energy Revolving Account (PERA), activated in December 2022, receives an annual funding of Rs48 billion for this purpose.
Chinese officials have voiced concerns regarding the non-fulfillment of CPEC agreements, particularly highlighting the delay in energy payments.
China has conditioned the provision of $600 million in new loans on Pakistan’s commitment to settle the energy dues.
The ongoing financial strategy, allocating Rs48 billion yearly with a monthly withdrawal limit of Rs4 billion, is in conflict with the 2015 Energy Framework Agreement, which necessitates adequate fund allocation to shield Chinese investors from the impacts of circular debt.
As of February’s end, the power projects’ accumulated dues soared to Rs487 billion.
The significant rise in CPEC-related circular debt was noted during the tenure of the interim government, which failed to make timely payments, exacerbating the financial strain.
In the recent review discussions with the International Monetary Fund (IMF), Pakistan confirmed its decision not to increase the budget allocation for clearing the existing energy sector dues within the current fiscal year.
To maintain the arrears at the current level, the government would need to allocate between Rs10 billion to Rs15 billion monthly from the budget. However, fiscal limitations hinder these payments.
Chinese authorities are skeptical about the PERA serving as a substitute for the Revolving Fund agreed upon in the CPEC contracts, which required maintaining a balance equal to 21% of monthly invoiced amounts.
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