ISLAMABAD: The government limited its unpaid dues to China-Pakistan Economic Corridor (CPEC) power projects at Rs423 billion by the end of fiscal year 2024-25, with the amount expected to be settled depending on the resolution of the interest on late payments.
Official documents show that Pakistan has paid Rs5.1 trillion in energy costs to 18 Chinese power plants since 2017, covering 92.3% of the billed amount, including interest. Authorities believe the actual energy cost remaining is under Rs300 billion, with the rest being late payment surcharges.
As part of efforts to reduce circular debt, the government is arranging nearly Rs1.3 trillion in loans from local commercial banks to repay debts owed to state-owned plants, nuclear facilities, private units, and Chinese power producers. One condition from the federal cabinet includes negotiating with producers to waive interest in exchange for upfront payments.
However, Chinese companies may not agree to this due to internal requirements, leaving the government with the choice of full payment or phased clearance based on fiscal space.
The Rs423 billion in unpaid bills violates the 2015 CPEC Energy Framework Agreement, which requires the government to fully settle dues regardless of consumer recoveries. The non-fulfillment of contract terms and security concerns have affected financial and commercial ties with China.
Prime Minister Shehbaz Sharif is expected to visit China next month to discuss investor concerns and attract further Chinese investment.
Under the energy agreement, Pakistan was to establish a revolving fund equal to 21% of power invoices to shield Chinese firms from circular debt. The previous government opened this fund at the State Bank of Pakistan in October 2022 with Rs48 billion annually but limited monthly withdrawals to Rs4 billion, leading to the current unpaid balance.
Pakistan owes Rs87 billion to the Sahiwal imported coal-fired power plant, which received Rs1.14 trillion in eight years. The Hub coal project is owed Rs69 billion from total claims of Rs834 billion.
The Port Qasim plant’s remaining dues are Rs85.5 billion, up Rs15 billion from last year, while the Thar Coal project is owed Rs55.5 billion out of Rs566 billion in claims. Other pending dues include Rs38 billion to Engro Powergen Thar Coal, Rs28.5 billion to Matiari Lahore Transmission Line, Rs11 billion to Karo Power, and Rs8.3 billion to Thar Energy Limited.
The Chinese government has raised the issue through diplomatic channels. Officials expect the debt to reduce once the procedural work by banks and government entities is completed. The government has reached a deal with banks to borrow Rs1.25 trillion at under 11% interest, lower than existing borrowing costs and penalties for late payments.
The Central Power Purchasing Agency (CPPA) will hold this debt, keeping it off the public debt record.
Out of this new borrowing, Rs660 billion will go toward Power Holding Limited’s older debt, which was borrowed at KIBOR plus up to 2%. Nuclear plants will receive Rs280 billion and LNG plants Rs220 billion.
Previously, the government paid up to 14% to banks and 16% to independent producers for delays. Of the total Rs2.4 trillion circular debt, Rs1.5 trillion in principal needs to be cleared to end the problem.
Finance Minister Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari have led unsuccessful efforts to reschedule this debt. Pakistani officials had requested an extension of five to eight years for repayments, a shift of interest payments from US dollars to Chinese currency, and a reduction in interest rates for both CPEC and other Chinese-funded projects.
