Pakistan has reduced its outstanding payments for Chinese energy projects to $1.4 billion (approximately Rs391 billion) after committing to fully settle new invoices. This decision could necessitate additional budget allocations or delay payments to other energy plants.

By the end of the first quarter of the current fiscal year, the arrears of China-Pakistan Economic Corridor (CPEC) power projects were slightly lowered to Rs391 billion, a decrease of Rs10 billion (2.5%) from the end of fiscal year 2024. The liabilities, which had previously peaked at $1.8 billion due to delayed payments, are now equivalent to $1.4 billion.

The non-payment of energy costs and returns on equity is a significant concern for Beijing, especially following issues related to the security of Chinese nationals. During the latest Joint Cooperation Committee (JCC) meeting, Pakistan pledged to achieve 100% tariff settlement for invoices from commercial operation date (COD) projects since FY2024.

Currently, Pakistan is clearing about 88% of invoices from 17 power plants with a total generation capacity of 8,020 megawatts. Increasing this to 100% will require substantial additional resources, which have not been adequately budgeted. Instead of establishing a revolving fund to address circular debt for Chinese plants, Pakistan has set up a revolving account with annual allocations of Rs48 billion.

Chinese investors are also struggling to receive dividends from their $16.3 billion investments. While the central bank claims all outstanding dividend payments were settled by the end of June 2024, Chinese companies assert they have yet to receive these funds.

Fourteen operational power projects under CPEC have a combined capacity of 8,020 MW and a total investment of approximately $16.3 billion. An 870 MW hydroelectric project worth about $1.7 billion is under construction and expected to start operations next month. Three additional plants with a combined capacity of 2,100 MW and a total investment of about $4.2 billion have not yet reached financial closure.

Pakistan has sought Chinese loans for these three plants, but China is hesitant to provide funding until the delayed payment issues for existing projects are resolved. Minutes from the 13th JCC meeting indicated that progress on the Azad Pattan hydropower project, Kohala hydropower project, and Gwadar coal-fired power plant has been significantly delayed, particularly regarding financial closure.

Pakistan has breached CPEC agreements by not making timely payments for power purchases from Chinese plants, which has made Sinosure cautious about financing new projects. As of September 2024, the outstanding dues to Chinese power plants were Rs391 billion, down Rs10 billion (2.5%) from the previous year.

Pakistan still owes substantial amounts to several plants, including Rs80.2 billion to the Sahiwal coal-fired power plant, Rs66.3 billion to the Hub power project, Rs82 billion to the Port Qasim power plant, and Rs62.5 billion to the Thar coal project.

Islamabad is also pursuing energy debt restructuring with Beijing, but China declined to sign any memorandum of understanding during the recent visit of the Chinese prime minister. Chinese companies have expressed their opposition to reducing profit margins or renegotiating the 2015 power purchase agreements.

Receivables from other projects are also significant, with Engro PowerGen at Rs38.8 billion, the Matiari-Lahore Transmission Line at Rs16.6 billion, and the Karot power project at nearly Rs12.6 billion by the end of last month. Thar Coal Energy Limited’s payables were reduced to Rs2 billion, ThalNova’s to Rs1.6 billion, and the UEP power plant’s receivables stood at Rs5.5 billion.

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