Pakistan cuts debt to Chinese energy projects by 2.5% in first quarter

Pakistan was able to cut its debt to Chinese energy projects by Rs10 billion to Rs391 billion by the end of the first quarter of FY2024-25, down 2.5% from the same period of the previous year, according to the Ministry of Energy. 

As per a news report, the outstanding debt has been reduced to $1.4 billion in US dollar terms (Rs391 billion) from $1.8 billion a year ago. 

The outstanding payments have been a significant concern for Beijing, especially following the last Joint Cooperation Committee (JCC) meeting where Pakistan committed to clearing 100% of tariffs for invoices since fiscal year 2024.

Currently, Pakistan manages to pay about 88% of invoices from 17 power plants with a capacity of 8,020 megawatts. The full payment will require additional funds, yet the budget lacks specific allocations for this purpose. 

Rather than establishing a dedicated fund to protect Chinese plants from becoming mired in circular debt, Pakistan has set aside only Rs48 billion in a revolving account.

Chinese investors have also faced difficulties in receiving dividends from their $16.3 billion investments, despite the central bank’s claims of having cleared all outstanding dividends as of the end of June 2024. The Chinese contend that these payments have not been received.

There are currently 14 operational power projects under CPEC, totaling an investment of approximately $16.3 billion. 

Additionally, an 870MW hydroelectric project, costing around $1.7 billion, is under construction and nearing its commissioning date. Three other power projects, totaling 2,100MW and $4.2 billion in investments, are yet to secure financial closure.

Pakistan has sought Chinese loans for these projects, but Beijing remains hesitant due to unresolved payment issues with operational plants. 

Despite these challenges, Pakistan’s Ministry of Energy reported a slight decrease in the outstanding dues to Chinese power plants, amounting to Rs391 billion as of September 2024. However, the Sahiwal coal-fired plant alone still holds Rs80.2 billion in arrears.

As Islamabad seeks to restructure its energy debt with China, the latter remains unyielding, not agreeing to any restructuring memorandum during the recent visit of the Chinese prime minister. 

Chinese firms oppose any reduction in profit margins or renegotiation of the 2015 power purchase agreements, maintaining firm stances on established contracts.