Pakistan, China to restructure $16bn in CPEC power debt during PM Li Qiang’s visit

Pakistan and Chinese power companies are poised to sign major agreements on debt reprofiling and a moratorium on payments exceeding $16 billion during the visit of Chinese Prime Minister Li Qiang. 

According to a news report, these agreements will address foreign currency (FCY) debt related to nine power generation projects and one transmission line under the China-Pakistan Economic Corridor (CPEC).

The draft MoUs, which are expected to be signed during Prime Minister Li Qiang’s visit, include several key terms. These involve extending the current FCY loan repayment period by five years, introducing a three-year moratorium on principal payments, and potentially converting the loan’s base currency and interest rates. These measures are intended to provide relief to Pakistan’s strained power sector, which has been grappling with rising costs.

On the Pakistani side, PPIB will lead the signing, while Chinese companies will participate in the negotiations. These MoUs will be crucial in achieving financial sustainability for Pakistan’s power sector, which has seen a sharp rise in consumer tariffs due to increasing costs.

The government of Pakistan, facing surging electricity prices, has proposed debt restructuring to rationalize electricity costs. A key goal of this reprofiling is to ease the burden on consumers, with debt repayments for CPEC projects currently stretching into 2041. 

Under the new agreements, a five-year extension to the repayment period and a three-year moratorium on principal payments are expected.

Earlier, Pakistan’s Ministers for Energy and Finance visited China in July 2024, meeting with Chinese officials and financial institutions to discuss debt restructuring. 

Following these meetings, the Ministry of Finance formed a task force on August 26, 2024, to assess debt reprofiling options. China International Capital Corporation (CICC) and Habib Bank Limited (HBL) were engaged as consultants, and after extensive discussions, the draft MoUs were reviewed and finalized by both the Power Division and Finance Division of Pakistan.

Reports indicate that Pakistan’s total outstanding debt liability under the CPEC projects stands at $1.63 billion for 2024, gradually decreasing each year until 2041. With the proposed five-year extension, the total repayment will increase from $15.4 billion to $16.62 billion, reflecting a restructuring aimed at easing the repayment burden over a longer period.

To ensure the legality of the agreements, the Power Division has sought consultation from the Law & Justice Division. The MoUs will require approval from the Federal Cabinet before formal execution.