ISLAMABAD: The government is facing a critical challenge in distributing payments to Independent Power Producers (IPPs) under its Rs1,275 billion circular debt settlement plan, as Chinese IPPs operating under the China-Pakistan Economic Corridor (CPEC) have not agreed to revise their Power Purchase Agreements (PPAs).
A senior Power Division official confirmed that while negotiations have progressed with many local IPPs to revise contracts for cost relief, the treatment of Chinese power projects remains a sticking point. “The dues owed to CPEC power plants have now soared to Rs48 billion,” the official said, adding that the disbursement strategy may require more time to finalize.
The circular debt in the power sector currently stands at Rs2.381 trillion. The government aims to reduce it by Rs1,275 billion through loans from 18 commercial banks. The remaining amount will be lowered via interest rate gains and revised PPAs, eventually leaving Rs300 billion to be erased through operational efficiencies.
To date, the government has secured tariff relief of Rs1.43 per unit by:
- Terminating five IPP contracts (Rs0.77/unit relief)
- Revising eight bagasse power plants’ tariffs from USD to PKR (Rs0.14/unit relief)
- Shifting 14 IPPs to a ‘take and pay’ model (Rs0.43/unit relief)
Additionally, talks are ongoing with 35 wind power plants. However, some are resisting contract revisions, citing the Chinese IPPs’ refusal to renegotiate.
The Rs1,275 billion loan comprises two tranches:
- Rs658 billion, already secured with sovereign guarantee
- Rs617 billion, recently acquired without government guarantee but backed by CPPA receivables
The loan will be repaid over six years via a Debt Service Surcharge (DSS) of Rs3.23 per unit, already in effect and included in electricity bills. Though the surcharge has reached the previous 10% cap, the cap has now been removed under IMF’s structural benchmarks, enabling the continuation of DSS collections without new burdens on consumers.
While all administrative formalities for disbursement are complete, the government remains in a quandary on how to proceed with payments to Chinese IPPs—whose contractual terms remain unchanged—without disrupting the broader debt settlement strategy.
Story by Khalid Mustafa
