A memorandum of understanding (MoU) is expected to be signed for the reprofiling of debt related to power projects amounting to $15.4 billion under the China-Pakistan Economic Corridor (CPEC) during the anticipated visit of the Chinese prime minister to Pakistan, sources said on Tuesday.

They added that Pakistan had proposed the reprofiling of loans for such power projects, which could increase the country’s overall payment burden by approximately $1.22 billion.

With a five-year extension for repayments, the total payment amount would rise from $15.4 billion to $16.62 billion.

Chinese Prime Minister Li Qiang is expected to visit Pakistan this month to attend the Shanghai Cooperation Organisation meeting for heads of government on October 16.

Pakistan is set to host the SCO heads of government meeting from October 15 to 16. The event would be preceded by a ministerial meeting and several rounds of senior officials’ meetings focused on financial, economic, socio-cultural, and humanitarian cooperation among the SCO member states.

The visit and the potential agreements highlight the ongoing financial cooperation between Pakistan and China, particularly in the energy sector, as both nations seek to address economic challenges and enhance developmental projects under CPEC.

Sources added that Pakistan’s Private Power Infrastructure Board and Chinese companies are poised to sign a MoU regarding the reprofiling of debt. The approval would be sought from the federal cabinet, which includes a proposal to defer payments to China for up to three years.

According to Business Recorder, Pakistan and Chinese power companies are prepared to finalise agreements on debt re-profiling and a moratorium on payments exceeding $16 billion for periods of three to five years.

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Pakistan’s power sector has been plagued by high rates of power theft and distribution losses, resulting in accumulating debt across the production chain - a concern raised by the IMF.

The government is implementing structural reforms to reduce “circular debt” - public liabilities that build up in the power sector due to subsidies and unpaid bills - by Rs100 billion ($360 million) a year, Energy Minister Awais Leghari told Reuters in July.