Pakistan is considering seeking a five-year extension in the tenor of outstanding debt owed to Chinese Independent Power Producers (IPPs), amounting to $15.36 billion. With an International Monetary Fund (IMF) team assessing Islamabad’s debt repayment capability, negotiations with China are expected to be lengthy and complex.
The proposal includes reducing consumer tariffs by Rs1.1 from 2024-2029 and Rs0.9 from 2030-2040, resulting in an average reduction of Rs0.18 per kWh over the period. However, extending the debt tenor would escalate the outstanding liability to $16.61 billion over five years, with a corresponding increase of Rs377 billion in rupee terms.
The rationale behind seeking an extension lies in alleviating the initial financial burden on consumers, which is concentrated in the first 10 years of debt service repayments. By staggering the repayment over a longer period, the strain on consumers can be mitigated.
Pakistan is home to 21 IPP projects under the China–Pakistan Economic Corridor (CPEC), spanning coal, hydel, wind power, and transmission lines. The negotiation process for debt extension involves discussions at the government-to-government (G2G) level and subsequent talks with Chinese IPPs.
Furthermore, the IMF has urged Pakistan to transparently disclose outstanding liabilities, including pensions, state-owned enterprises (SOEs), and subsidies, over the next five years. Nepra has also engaged in discussions regarding baseline tariffs, with the possibility of an increase by Rs5 to 7 per unit.
Overall, negotiations with China and discussions with the IMF are pivotal for Pakistan to address its debt repayment challenges and navigate its energy sector tariffs effectively.
