Pakistan mulls extending Chinese IPP debt payments amid IMF review

ISLAMABAD: Pakistan is mulling over a proposal to elongate the duration of outstanding debt owed by Chinese Independent Power Producers (IPP), totaling $15.36 billion, by an additional five years.

The decision coincides with the arrival of an International Monetary Fund (IMF) team tasked with assessing Pakistan’s capacity to handle its mounting debt obligations.

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One potential avenue under consideration involves reducing consumer tariffs by Rs1.1 from 2024 to 2029 and by Rs0.9 from 2030 to 2040. Such measures would lead to an average tariff decrease of Rs0.18 per kilowatt-hour from 2024 to 2040, alongside extending the debt maturity period for five years from 2036 to 2041.

Proponents of this proposal argue that the current structure of power tariffs disproportionately front loads debt servicing payments, burdening consumers heavily during the initial stages of a project. Extending the debt maturity period would help distribute this burden over a more extended period, thus alleviating immediate financial pressures on consumers.

The outstanding debt owed by Chinese IPP in Pakistan stands at $15.36 billion across various ventures – coal, hydel, wind power, and transmission lines. The debt is owed to IPPs particularly within the framework of the China-Pakistan Economic Corridor (CPEC),

Negotiating an extension in the debt maturity period for with Chinese entities can result in heightened financing costs. Experts estimate it will cost Pakistan more than $1 billion following contractual amendments and discussions with IPPs and financiers.

Pakistan also faces pressure from the IMF to provide transparency regarding its outstanding liabilities concerning pensions, state-owned enterprises (SOEs), and subsidies over the next five years.

The IMF has urged Pakistan to formalise negotiations for a new bailout package, as existing liabilities have not been accurately accounted for, posing challenges for the IMF in assessing Pakistan’s true debt and liabilities.

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Pakistan’s attempts to extend the duration of Chinese IPP debt sheds light on its ongoing struggles in managing its debt load and negotiating with international financial institutions, be it China or the IMF.