The federal government has decided to clear a staggering Rs100 billion in outstanding payments to Chinese Independent Power Producers (IPPs) ahead of Prime Minister Shehbaz Sharif’s visit to China. According to reports, this payment is expected to slash the federal government’s dues to Chinese electricity producers by 25 percent, creating fiscal breathing space for Islamabad.

 

Reports reveal that the Ministry of Finance (MoF) has issued directives for the repayment amount to be released from funds that were initially allocated to sustain the power sector subsidy for the fiscal year (FY) 2025-26. It merits a mention that Chinese IPPs have not received this amount as of publishing, as reports suggest that they will obtain this amount in a few days. 

 

As per reports, the federal government has also earmarked Rs8 billion for Chinese IPPs from funds that were initially allocated for routine budgetary provisions. With the aforementioned repayments, Islamabad’s total outstanding amount to Chinese IPPs will sit close to Rs300 billion, down from the initial amount of Rs423 billion.

 

For reference, the Rs423 billion figure was the value owed by the government to plants owned by the Chinese under the China-Pakistan Economic Corridor (CPEC) framework. Reports claim that Pakistan’s inability to clear the dues had been straining relations with Beijing, causing the Prime Minister to push for a partial repayment.

 

Under the 2015 CPEC Energy Framework Agreement, Pakistan was obligated to settle all liabilities in the power sector in full, irrespective of recoveries from users of the national grid.

 

Earlier this month, the Chief Executive Officer (CEO) of Port Qasim Electric Power Company (PQEPC) Wang Dongfang warned the federal government, indicating that the company was legally allowed to suspend plant operations if payments were not cleared. Additionally, he outlined how the company would not be liable for liquidated damages either as per Section 9.10 of the Power Purchase Agreement (PPA).

 

The CEO underlined how this would “result in a lose-lose outcome for both sides”. Pakistan’s energy sector is already under stress and the closure of the plant would have only served to exacerbate the strain on the sector.

 

In the face of the aforementioned developments, the Finance Ministry is reportedly negotiating a loan amount of Rs1.3 trillion from domestic commercial banks to clear circular debt owed to Chinese, private, nuclear and state-owned power plants. As per the details, discussions to secure the loan are still ongoing.