Pakistan's outstanding dues to China-Pakistan Economic Corridor (CPEC) power projects remained at Rs423 billion by the end of June, as the government continues to search for $10 billion in cheaper financing to repay expensive energy loans and reduce electricity tariffs.
Government's Search for Cheaper Loans
After struggling to secure loans from multilateral lenders, the government is now looking to obtain $10 billion from bilateral creditors at a 1% interest rate. These funds would be used to retire expensive Chinese loans and subsequently lower energy prices, according to government officials. The developments come against the backdrop of China's persistent reluctance to renegotiate its energy contracts, which the government had sought to reopen to reduce tariffs.
Sources indicate that Pakistan is considering tapping Saudi loans in the range of $6 billion to $10 billion. These loans are planned for settling the Chinese energy debt incurred by Chinese energy suppliers to set up power plants under CPEC.
Proposal for Tariff Reduction
In January, the government discussed taking cheaper foreign loans to repay expensive debt for reducing prices. The revised proposal suggests that prices could be reduced by 3 US cents per unit, but securing financing at such low rates remains extremely difficult. The government aims to obtain $1.1 billion to $1.4 billion per annum in new loans at 1% interest over the period of 2027 to 2034, with repayments spread over 15 years, subject to acceptance by multilateral or bilateral creditors.
Pakistan's Power Minister Sardar Awais Laghari and Finance Minister Muhammad Aurangzeb were scheduled to travel to Saudi Arabia on Saturday. When asked whether the purpose was to seek Saudi loans for the energy sector, Laghari said on Friday: "It is not on the agenda of our meeting." He stated he was attending a meeting of the Energy group focusing on reforms and investment opportunities in transmission and grid digitisation.
Impact on Consumers
According to the government's proposal, the annual amount received will be used for tariff reduction and reflected in the financials of the Central Power Purchase Agency-Guaranteed (CPPA-G) as a loan. The loan will not appear in government borrowing, and repayment of each yearly tranche with a 1% markup will commence after a three-year grace period and be repaid over 15 years through consumer tariffs via CPPA-G.
The Power Division notes that consumers bear a substantial debt-servicing burden, now accounting for more than one-third of the average electricity tariff. The average tariff is approximately 11 US cents, excluding taxes, of which nearly 4 US cents per unit is attributable to fixed debt-servicing obligations. Such inflexible costs limit further tariff rationalisation beyond measures already in place.
Documents show consumers are burdened with $30.6 billion in power-producer debt repayments over the next 13 years. Additionally, consumers pay a debt service surcharge to recover circular debt amounting to $5.7 billion, arising from lower recoveries, high distribution losses, and rising financing costs.
Unpaid Dues and CPEC Framework Violation
With limited success in securing new loans or resolving issues with Chinese investors, payables to CPEC plants remained at Rs423 billion at the end of fiscal year 2025-26. Chinese financial institutions and power producers have shown reluctance to write off about Rs170 billion in interest on late payments, which the government seeks before making principal repayment of over Rs260 billion for energy purchase costs.
Due to this disagreement, the government has been unable to fully utilise the Rs1.25 trillion banking facility signed to retire circular debt. The Power Division is now moving a summary for cabinet approval to extend the facility by six months, as it expired in June.
The Rs423 billion unpaid debts violate the 2015 CPEC Energy Framework Agreement, which requires the government to fully clear dues regardless of whether it recovers amounts from end consumers. Under the agreement, Pakistan was to create a revolving fund with 21% of power invoices to protect Chinese firms from circular debt. The previous government opened a Pakistan Energy Revolving Account at the State Bank of Pakistan in October 2022 with Rs48 billion in annual allocations but limited withdrawals to Rs4 billion per month, leading to the current debt stock.
Breakdown of Outstanding Dues
Documents show Pakistan owes Rs85 billion to the imported coal-fired Sahiwal power plant, Rs64 billion to the coal-fired Hub power project, and Rs76 billion to the coal-fired Port Qasim power plant. The Thar Coal project dues stand at Rs54 billion, Karot Power Company at Rs17.5 billion, Engro Powergen Thar Coal at Rs43 billion, Matiari Lahore Transmission Line at Rs28 billion, and Thar Energy Limited at Rs11.5 billion.
