The circular debt owed to Independent Power Producers (IPPs), particularly those from Chinese companies, has soared past Rs. 400 billion.
The increase challenges Chinese firms to continue other power sector projects. The overall circular debt for the power sector in Pakistan had already escalated, reaching over Rs2.6 trillion by the end of October 2023.
The debt accumulation for Chinese IPPs is rapidly increasing, mirroring the general trend in the power sector. Concerns about resolving this growing financial burden are rising among the Chinese. A few months prior, the debt was estimated between Rs250 and Rs300 billion, and despite some instalments paid by the previous government, the debt has since increased again. Officials have expressed concerns that unresolved debt issues could slow down Chinese investment in other power projects in Pakistan.
Complications in Debt Repayment and Potential Solutions
The repayment of debts to Chinese power plants, particularly those running on imported coal and RLNG, further complicates the situation. With the Chinese reluctance to accept capacity repayments in local currency and the depreciation of the rupee against the dollar, Pakistan faces a difficult situation in managing these debts.
The government is considering proposing that the Chinese switch to domestic coal to reduce generation costs. As of October 30, 2023, the circular debt had risen by Rs250 billion since June, with revised estimates suggesting a further increase of Rs385 billion by December. The payable amount to power producers is Rs1.75 trillion, and distribution company losses in the first four months of the fiscal year totalled
Rs76 billion. Despite efforts such as raising tariffs and implementing surcharges, the power sector remains in turmoil, with no immediate relief in sight. Attempts to contact power ministry officials for comments have so far been unsuccessful.
