CPEC energy debt reprofiling: Economic relief at a billion-dollar price tag

Pakistanis look on with weary eyes as lawmakers in Islamabad plan to celebrate a possible extension of a $15.4 billion loan. The debt reprofiling for energy-based projects attached to the China–Pakistan Economic Corridor (CPEC) will increase the debt amount by approximately eight per cent, which is huge given that it amounts to $1.22 billion.

What exactly is debt reprofiling in this context?

Simply put, Pakistan will get five more years to pay back the loan – all the while, interest will keep racking up on the principal loan amount.

The repayments of this additional sum exceeding one billion dollars will come from taxpayer funds at the end of the day as Pakistan seeks to climb out of the quagmire of the circular debt problem it finds itself in.

Since the government has planned not to pay this amount by incurring further debt, this reprofiling will translate into higher tariffs on electric bills – an ugly sight Pakistanis are all too familiar with.

The hike in tariffs is bound to accelerate the existing trend of installing solar panels on residential properties in urban centres. According to a survey by Gallup Pakistan, over 15 per cent of households have some sort of solar panel system installed. This makes sense as it’s a great return on investment, at just PKR 1.5 million for a decent sized plant.

With prices for a single solar panel listed under PKR 16 thousand, it is possible that the business community linked with solar panels will see astronomical profits once the tariffs are increased.

However, this can prove disastrous for the FBR and the Chinese power companies operating in Pakistan under the CPEC project. This will be because revenues may decline when people resort to using grid electricity for their electricity.

Rumours are circulating that in the wake of the extension of the loan, lawmakers might introduce taxes on green meters linked to home-based solar systems. This will be done in an attempt to expand the energy sector tax net once again – as many have found respite in solar power.

The rumour, however, maybe just that: A rumour.

This is because Chief Minister Punjab Maryam Nawaz favours a transition towards sustainability, as proven by her scheme to equip 50,000 households with solar power systems.

Introducing taxes on solar panels will set her sustainability goals back.

The arrival of the Prime Minister of China Li Qiang, ahead of the high profile SCO (Shanghai Cooperation Organization) meetings will indeed provide relief to the economy. But can the same be said for citizens when the debt burden gets passed off to the taxpayers? Time will tell.