Pakistan rules out renegotiating $15bn Chinese energy debt, stresses commitments remain intact

Pakistan’s Planning Minister Ahsan Iqbal on Monday dismissed any suggestion of renegotiating the $15 billion energy debt with China, clarifying that all bilateral agreements remain in place despite calls for adjustments. This follows a series of failed attempts by Pakistan’s finance and power ministries to reopen these deals, The Express Tribune reported. 

Addressing a press conference, Iqbal stated that Pakistan must honor its financial obligations, emphasizing that renegotiating the Chinese energy debt would only increase the country’s financial risk and damage its credibility with foreign investors.

The minister confirmed that Pakistan had sought a five- to seven-year extension for debt repayment, aimed at alleviating pressure on the country’s foreign currency reserves and potentially reducing electricity prices.

China financed 21 energy projects under the China-Pakistan Economic Corridor (CPEC), with the total remaining debt standing at $15.4 billion. The current structure requires repayments of both principal and interest within the first 10 years, resulting in higher electricity tariffs for consumers.

Despite pressure from Western financial institutions to revisit these deals in hopes of reducing energy costs, China has refused to engage in negotiations that would exclude Western debt, which accounts for over 45% of Pakistan’s total external debt, much of it owed to multilateral institutions.

After assuming office, Prime Minister Shehbaz Sharif had also proposed to China a plan to extend the debt repayment period. The goal was to reduce Pakistan’s annual foreign currency outflow by $750 million and potentially lower electricity prices by Rs3 per unit.

The government has sought a 5-7 year extension on Chinese energy debt repayments related to power projects under the China-Pakistan Economic Corridor (CPEC). However, with the current remaining debt of $15.4 billion, repayments could total $16.6 billion by 2040.

Under the current power tariff structure, the first 10 years of the deals require debt servicing payments, which are passed on to consumers in the form of higher electricity prices.