- Pakistani refineries seek funding from China for plant upgrades, but recent government policies have complicated the situation further
China has expressed reluctance to provide financing for Pakistan’s energy projects due to concerns over the country’s economic performance, security situation, and repayment challenges, The Express Tribune reported, citing sources.
Pakistani energy companies have been seeking financing from China for various ventures. However, China Export & Credit Insurance Corporation (Sinosure), a state-owned Chinese insurance company that provides coverage for foreign loans, has been hesitant to offer insurance for these loans. Without this insurance, Chinese banks are reluctant to release funds for the projects.
Sources indicate that Chinese authorities have raised three main concerns during discussions with Pakistani delegations seeking financing in Beijing. The first concern is Pakistan’s limited dollar reserves, which have hindered the ability of Chinese firms in Pakistan to repatriate dividends in US dollars. Chinese officials have requested assurances from Pakistan on how these repayments will be managed.
The second concern revolves around the security situation in Pakistan. There have been multiple incidents of attacks on Chinese engineers working on projects in the country, which have heightened security concerns.
The repayment difficulties of previous loans to Pakistani projects have made Chinese lenders cautious about providing further financing. These experiences have led to increased reluctance among Chinese financial institutions to fund new projects.
Additionally, sources report that oil refineries in Pakistan are seeking funding from China to begin plant upgrade projects. However, the Pakistani government’s recent policies, such as the sales tax exemption that cost the oil industry Rs34 billion in FY 2024-25, have further complicated matters. Though the government has promised to impose a 5% sales tax in the FY 2025-26 budget, uncertainty over tax breaks persists, adding to the instability in the sector.
The imposition of petroleum and carbon levies on furnace oil has led to an 80% price hike, causing a drastic reduction in its sales. Industry officials have raised concerns that financial institutions, including Chinese lenders, will be unwilling to offer financing to refineries facing such challenges.
Despite efforts from Petroleum Minister Ali Pervaiz Malik to address these issues, the oil industry remains skeptical about the government’s commitment to resolving these financial and policy concerns.
