Pakistan’s Strategic Move: Clearing Dues to Chinese Power Plants

In a significant development, Pakistan is set to release over Rs100 billion to Chinese power producers. This financial decision comes just ahead of Prime Minister Shehbaz Sharif’s visit to China, demonstrating a commitment to bolstering economic ties with one of its key partners.

Why This Matters

According to officials, the Finance Ministry has mandated these payments, which will reduce the outstanding dues owed to Chinese Independent Power Producers (IPPs) by nearly 25%. By making these payments, Pakistan aims to address one of Beijing’s primary concerns—delayed payments. It’s part of a broader strategy to foster better relations under the China-Pakistan Economic Corridor (CPEC), which plays an essential role in both countries’ economies.

The Financial Breakdown

Of the Rs100 billion, Rs8 billion will also be allocated from regular budget funds for Chinese power producers. The Prime Minister has pushed for the disbursement of these funds by August 25th, coinciding with his attendance at the Shanghai Cooperation Organization (SCO) meeting in China.

As of June this year, the total outstanding dues from CPEC power projects stood at Rs423 billion. After this injection of funds, that figure will fall to just over Rs300 billion. It’s worth noting that since 2017, Pakistan has already paid Rs5.1 trillion in energy costs to 18 Chinese power plants, making up approximately 92.3% of the billed amount.

Addressing Circular Debt

The government is currently exploring the option of securing nearly Rs1.3 trillion in new loans from local banks to tackle circular debt that affects state-owned and privately-owned power plants alike. This mounting circular debt has been a continuous challenge for Pakistan’s energy sector. In fact, it violates the 2015 CPEC Energy Framework Agreement, which stipulates that all dues should be cleared promptly, regardless of consumer recovery issues.

Challenges Ahead

While the recent payments are a step in the right direction, experts caution that much work remains. The previous government initiated a Pakistan Energy Revolving Account with limited withdrawal capabilities, contributing to the current debt situation. To effectively manage these debts and restore consumer confidence, a complete overhaul of the energy sector is necessary, beyond just financial injections.

Conclusion

The move to clear outstanding dues is more than just a financial transaction; it represents a strategic effort to strengthen ties with China and ensure the smooth functioning of crucial energy projects. By addressing these dues, Pakistan not only works to stabilize its energy sector but also fosters long-term partnerships that are vital for its economic health.

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