CPEC power dues rise to Rs423b
The government managed to restrict the outstanding dues of China-Pakistan Economic Corridor (CPEC) power projects to Rs423 billion by June this year, which might also be settled soon, subject to early resolution of the issue of interest on late payments.
The official documents showed that as of the end of fiscal year 2024-25, the outstanding energy payments to Chinese power plants amounted to Rs423 billion. These were Rs22 billion, or 5.5%, more than the preceding fiscal year.
The details showed that since 2017, the country has paid Rs5.1 trillion in energy costs to the 18 Chinese power plants, which were equal to 92.3% of the billed amount, including interest. The Pakistani authorities believe that the actual remaining cost of energy was less than Rs300 billion and the rest of the amount was due to late payment surcharges.
The government is in the process of taking nearly Rs1.3 trillion in fresh loans from the local commercial banks to retire the circular debt that it owes to the state-owned power plants, nuclear power plants, privately owned plants, and the Chinese plants.
According to one of the conditions set by the federal cabinet, the authorities will negotiate with the power producers to waive off the interest payments in return for taking upfront full payments, said a government functionary who is part of these discussions.
The Chinese might not waive off the interest cost due to their internal requirements, which would leave the government with the option of either making full payments in one go or clearing the dues as the fiscal space is created.
The Rs423 billion unpaid debts are in violation of the 2015 CPEC Energy Framework Agreement, which binds the government to fully clear the dues irrespective of whether the authorities can recover the amounts from the end consumers.
Along with security, the non-fulfilment of CPEC contracts is one of the reasons for slow progress in financial and commercial relations between the two nations. Prime Minister Shehbaz Sharif is expected to visit China next month, and one of the agenda items is luring Chinese investors to Pakistan by addressing their concerns.
Under the CPEC Energy Framework Agreement, Pakistan was required to create a revolving fund with 21% of the power invoices to protect Chinese firms from the circular debt crisis. However, the previous government opened a Pakistan Energy Revolving Account at the State Bank of Pakistan in October 2022 with Rs48 billion in annual allocations. But it limited the withdrawals to Rs4 billion per month, leading to the current Rs423 billion debt stock.
The documents show Pakistan owed Rs87 billion to the imported coal-fired Sahiwal power plant, while the company received Rs1.14 trillion in the past eight years of its operations. The country also owed Rs69 billion to the coal-fired Hub power project, compared to the Rs834 billion worth of total claims.
The outstanding remaining dues of the coal-fired Port Qasim power plant were Rs85.5 billion, as against the total bills of over Rs1 trillion. The Port Qasim plant's dues were roughly Rs15 billion higher than the preceding fiscal year.
The Thar Coal project dues remained at Rs55.5 billion. It had claimed Rs566 billion worth of dues. The outstanding dues of Karo power company were Rs11 billion, Engro Powergen Thar Coal Rs38 billion, Matiari Lahore Transmission Line Rs28.5 billion, and Thar Energy Limited Rs8.3 billion.
The Chinese government has repeatedly raised this issue with Pakistan through diplomatic channels, including Pakistan's embassy in Beijing and its own embassy in Islamabad.
It is expected that once the procedural formalities are completed by the commercial banks and the federal government's entities, the circular debt amounts would start going down.
The government had reached a deal with commercial banks to borrow Rs1.25 trillion at less than an 11% interest rate as part of its three-pronged strategy to eliminate the circular debt and restore power sector viability.
The banks are expected to disburse the loans soon after fulfilment of the procedural requirements.
The deal is said to be about 3% to 5% cheaper than the interest on the existing facilities and the penalties that the government pays for not making timely payments of the energy purchases. The Rs1.25 trillion debt is being taken on the books of the Central Power Purchasing Agency (CPPA), and it would not be part of the overall public debt.
The government was paying up to 14% cost to the commercial banks on the loans that it had taken in the past to retire the circular debt, and up to 16% price to the Independent Power Producers (IPPs) for not making timely payments to them.
Out of the total Rs2.4 trillion existing circular debt stock, there is a need to resettle the Rs1.5 trillion principal amounts to eliminate the debt stock.
Out of the Rs1.25 trillion, about Rs660 billion will be settled against the Power Holding Limited debt. This debt had been obtained in the past at a rate of KIBOR plus up to 2%. The nuclear plant powers will get around Rs280 billion, while the LNG power plants are expected to receive Rs220 billion.
Pakistan's earlier efforts to get the energy debt rescheduled have not succeeded, according to the government sources. Finance Minister Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari were leading these efforts.
The Pakistani officials had requested a five to eight-year extension for repaying energy debt, converting US dollar-based interest payments to Chinese currency, and reducing overall interest rates for both CPEC and non-CPEC Chinese-funded projects.
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