Government expedites payments to China

Government expedites payments to China following a commitment to fully clear new invoices.

Pakistan has reduced its outstanding dues to Chinese energy projects to $1.4 billion (or Rs391 billion) following a commitment to fully clear new invoices. This approach may either require an expanded budget or slow down payments to other power plants.

By the end of the first quarter of the current fiscal year, Pakistan’s arrears to China-Pakistan Economic Corridor (CPEC) power projects were trimmed to Rs391 billion, as per Ministry of Energy officials. This represents a Rs10 billion (2.5%) reduction compared to the liabilities at the close of fiscal year 2024.

The payables, now at $1.4 billion, were previously at a high of $1.8 billion less than a year ago, primarily due to reduced payments to these plants.

After securing the safety of Chinese nationals, China’s top concern has been delayed energy cost payments and returns on equity for its investors.

In the latest meeting of the Joint Cooperation Committee (JCC), CPEC’s highest decision-making body, Pakistan assured efforts to settle 100% of tariffs for invoices from COD projects since FY2024.

Pakistan has generally cleared about 88% of the invoices from 17 power plants with a collective capacity of 8,020 MW. Moving this to 100% will require substantial resources.

Yet, the current budget doesn’t allocate enough to meet this commitment fully. Instead of creating a revolving fund to shield Chinese plants from circular debt, Pakistan has established a revolving account with Rs48 billion in yearly allocations.

Chinese investors have also faced major challenges in receiving dividends on their $16.3 billion investments. Although Pakistan’s central bank claims all outstanding dividend payments were cleared by June 2024, Chinese companies report they have not received these funds. Fourteen operational power projects under CPEC with a total capacity of 8,020 MW account for this $16.3 billion investment.

An 870 MW hydroelectric project, worth $1.7 billion, is under construction and is expected to reach commercial operation next month. Meanwhile, three plants with a combined capacity of 2,100 MW and investments totaling $4.2 billion have yet to reach financial close.

Pakistan has been trying to persuade China to provide loans for these three plants. However, China has been hesitant due to the unresolved issue of delayed payments for the existing power projects.

China was also informed that projects like the Azad Pattan and Kohala hydropower plants and the Gwadar coal-fired power plant have lagged considerably, particularly regarding financial closure, as noted in the minutes of the 13th JCC meeting.

However, Pakistan’s delayed payments for electricity purchases from Chinese plants have breached CPEC agreements, leading Sinosure to hesitate in funding new power projects.

Power ministry documents indicate that, as of September 2024, outstanding dues to Chinese power plants totaled Rs391 billion—a reduction of Rs10 billion (2.5%) from the previous fiscal year.

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

Islamabad has also been trying to discuss energy debt restructuring with Beijing. However, China did not agree to sign a memorandum on restructuring energy debt during the recent visit of the Chinese prime minister.

Chinese companies have opposed any measures to lower profit margins or renegotiate the 2015 power purchase agreements.

Receivables from other projects are also substantial. As of the end of last month, the Engro PowerGen plant had receivables at Rs38.8 billion, the Matiari-Lahore Transmission Line at Rs16.6 billion, and the Karot power project at nearly Rs12.6 billion.

Thar Coal Energy Limited’s payables dropped to Rs2 billion, ThalNova’s to Rs1.6 billion, and UEP power plant’s receivables were Rs5.5 billion.