Debt re-profiling with Chinese IPPs: PD, FD likely to share implementation proposal

ISLAMABAD: The Power Division and the Finance Division are likely to share final proposal for complete implementation of power sector debt re-profiling with Chinese IPPs to impact the existing tariff with Prime Minister Shehbaz Sharif in a few days, well informed sources told Business Recorder.

This information was recently shared by the Power Division with the Prime Minister, following which Chinese Ambassador to Pakistan Jiang Zaidong held a meeting with the Minister for Power Sardar Awais Khan Leghari. China International Capital Corporation (CICC) had initiated the due diligence which halted for awhile, after the killing of three Chinese officials near Karachi airport in a suicide attack.

Currently, Central Power Purchasing Agency-Guaranteed (CPPA-G), the Market Operator (MO) owes about Rs 475 billion to Chinese CPEC IPPs.

Chinese IPPs face Rs500bn in unpaid dues

The government wants the Chinese IPPs to write-off huge Late Payment Surcharge (LPS) which they have not agreed to and have urged Pakistani authorities to take up this thorny issue with Beijing as they are unauthorized to take any final decision on it. Prime Minister, Sharif who is visiting China to attend the Shanghai Conference at the end of current month, is expected to table this issue before the top Chinese leadership. Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, who also heads CPEC affairs is finalizing the wish list for the Prime Minister.

Power Division with the support of Finance Division is finalizing the requisite documents with about 18 commercial banks to disburse the amount of Rs 1.275 trillion to retire power sector circular debt to bring it down from current level of Rs 1.614 trillion to around Rs 330 billion.

The sources said since a major chuck of banks loans of Rs 1.275 trillion are to be given to the “ protesting“ Chinese CPEC IPPs, the government wants a discount like offered by other IPPs on account of LPS. This will have significant impact on the balance sheets of Power Holding Limited (PHL).

“Circular debt swap arrangement is under discussion for loan of Rs 1.225 trillion to be parked in CPPA-G. Base loan of PHL of Rs 660 billion is assumed for FY 25 with additional loan Rs 565 billion to be availed from commercial banks ,” the sources quoted Power Division as informing the Prime Minister.

Swap of circular debt stock of Rs 2.4 trillion in six years is to be through re-financing of Rs 1.275 trillion at cheaper rates to be serviced by Debt Service Surcharge (DSS) of Rs 3.34 / kWh. However, this cap will be removed as per agreement with the IMF to bridge any gap in collection.

The Cabinet approved the transaction on June 18, 2025 with 16 documents received from banks and 5 documents awaited. In this regard Power Division’s team was in Karachi to finalize the remaining documents with the banks. The package is to be executed on Friday (Aug 15) or next week. Drawdown to be in place on execution within 90 days.

Power Division has harvested Rs 260 billion LPI waiver as of June 30, 2025 whereas Rs 76 billion is under negotiation- nuclear Rs 32 billion + 17 billion RLNG, Uch 8 billion and Rs 19 billion miscellaneous.

According to Power Division, it has signed renegotiated settlement agreements with 42 power projects of which contracts of 6 were terminated. Tariffs with 16 thermal power plants, 9 baggasse-fired power plants, 4 GPPs/RLNG, 2 Gencos, 6 nuclear power plants have been completed. The reduction is now translated through QTAs.

The Prime Minister has also been informed that negotiations with 34 power projects are also underway. Of this 3 projects are hydel of KPK, 3 SHPs in GEPCO jurisdiction, 18 CPEC (5 wind, 3 solar, 1 HVDC, 7 coal, 2 hydel) 2 Korean, (Laraib and Lucky), 3 DFC Wind and WAPDAs’ Neelum Jhelum Hydropower project is expected to be operational after two years.

Copyright Business Recorder, 2025