Representation purposes to show Pakistan-China relations.
Credit: Reuters File Photo
Islamabad: Amidst talks with the International Monetary Fund about a fresh loan, cash-strapped Pakistan is contemplating seeking a five-year extension on the $15.5 billion debt in the Chinese energy sector, it emerged on Friday.
The consent of the Chinese government as well as its Independent Power Producers' (IPPs) operating in Pakistan is mandatory to alter the existing contracts, which might require long negotiations to clinch the desired results, The News reported.
“If the government decides to make a formal request to China, then it will require long negotiations,” the paper reported, and highlighted various options.
“One of the options is to reduce the tariff for consumers by Rs 1.1 from 2024-2029, and Rs 0.9 from 2030 to 2040. So, in totality, the average tariff will reduce by Rs 0.18 kWh from 2024 to 2040 with an extension in the tenor of debt for five years from 2036-2041,” the report said, quoting top official sources.
According to the official workings done by the relevant ministries, which are currently under consideration at the highest level for making requests to China, if the Chinese IPPs debt got an extension in the tenure of the existing debt, then the outstanding liability would escalate from $15.36 billion to $16.61 billion, witnessing a surge by $1.3 billion over five years.
In rupee terms, the cost of IPP debt would go up by Rs 377 billion over five years.
The Pakistani authorities have made justifications to convince the high-ups and argued that the current power tariff structure concentrates debt service repayments in the first 10 years, placing a substantial financial burden on consumers during the project’s initial phase. By extending the debt tenure, the burden can be staggered over a longer period.
A total of 21 IPP projects are going on in Pakistan under the China–Pakistan Economic Corridor (CPEC), including eight projects of coal, four projects of hydel power, eight wind power and one transmission line.
The total outstanding debt of Chinese IPPs stands at $15.36 billion. To seek an extension in the tenor of IPPs’ debt, Pakistan will have to kick-start hectic negotiations at the Government to Government (G2G) level and then with the Chinese IPPs.
It could help reduce the consumer burden, improve cash flow for consumers and stimulate the economic growth of Pakistan. The financing cost will go up by $1.257 billion after lengthy negotiations with the IPPs, lenders and alteration of contracts, according to The News.
China has invested heavily in Pakistan’s energy and infrastructure projects under the CPEC which was launched a decade ago.
Meanwhile, the IMF has asked Pakistan to explicitly share its outstanding liabilities on account of pensions, state-owned enterprises (SOEs) and subsidies over the next five years because major outstanding liabilities were kept off the books, making it hard for them to gauge the actual outstanding debt and liabilities of the government.