Pakistan mulls seeking 5-year extension in $15.36bn Chinese IPPs debt

• Chinese govt, IPPs' consent mandatory to alter existing contracts.
• Govt to require long negotiations if it decides to request formally.
• Outstanding liability to escalate to $16.61bn in case of extension. 

ISLAMABAD: With the arrival of an International Monetary Fund (IMF) team to gauge Islamabad’s capability to repay the escalating debt, Pakistan is contemplating options to seek a five-year extension in the tenor of Chinese Independent Power Producers' (IPPs) outstanding debt of $15.36 billion.

The consent of the Chinese government as well as its IPPs operating in the country is mandatory to alter the existing contracts, which might require long negotiations to clinch the desired results.

“If the government decides to make a formal request to China, then it will require long negotiations. One of the options is to reduce the tariff for consumers by Rs1.1 from 2024-2029, and Rs0.9 from year 2030 to 2040. So, in totality, the average tariff will reduce by Rs0.18 kWh from 2024 to 2040 with an extension in the tenor of debt for five years from 2036-2041,” top official sources confirmed while talking to The News on Thursday.

According to the official workings done by the relevant ministries, which are currently under consideration at the highest level for making requests to China, if the Chinese IPPs debt got an extension in the tenor of the existing debt, then the outstanding liability would escalate from $15.36 billion to $16.61 billion, witnessing a surge by $1.3 billion over five years. In rupee terms, the cost of IPP debt would go up by Rs377 billion over five years.

The Pakistani authorities have made justifications to convince the high-ups and argued that the current power tariff structure concentrates debt service repayments in the first 10 years, placing a substantial financial burden on consumers during the project’s initial phase. By extending the debt tenor, the burden can be unloaded and staggered over a longer period.

A total of 21 IPP projects are going on in Pakistan under the China–Pakistan Economic Corridor (CPEC), including eight projects of coal, four projects of hydel power, eight wind power and one transmission line. The total outstanding debt of Chinese IPPs stands at $15.36 billion.

To seek an extension in the tenor of IPPs’ debt, Pakistan will have to kick-start hectic negotiations at the Government to Government (G2G) level and then with the Chinese IPPs. It could help reduce the consumer burden, improve cash flow for consumers and stimulate the economic growth of Pakistan. The financing cost will go up by $1.257 billion after lengthy negotiations with the IPPs, lenders and alteration of contracts.

The bifurcation of outstanding Chinese IPPs liabilities revealed that in financial year 2023-24, the Sahiwal Coal’s outstanding loans and liabilities stood at $740 million with the interest spread of 4.5%, Port Qasim coal project outstanding liability $872 million with interest spread of 3.5%, China Power Hub coal project having outstanding liability of $965 million with interest spread of 4.08%, Engro Power Thar outstanding liability of $491 million with interest spread of 4.32% & 3.5%, Thar Energy Coal outstanding liability of $350 million with interest spread of 4.5%, Thal Nova Coal outstanding liability of $362 million with interest spread of 4.5%, TCB-1 Coal project outstanding liability of $1.369 billion with interest spread of 4.5%, Gwadar Coal outstanding liability of $287 million with interest spread of 4%, Karot Hydro outstanding liability of $1.255 billion, Sukki Kinari hydro project outstanding liability of $1.28 billion with interest of 4.5%, Azad Patan hydro $1.01 billion, Kohala Power outstanding liability of $2.07 billion, Pak Matiari-Lahore Transmission Company Transmission Line outstanding liability of $1.15 billion.

Eight wind power projects have outstanding liability in the range of $40 to $88 million in each project.

Meanwhile, the IMF has asked Pakistan to explicitly share its outstanding liabilities on account of pensions, state owned enterprises (SOEs) and subsidies over the next five years because major outstanding liabilities were kept off the books, making it hard for them to gauge the actual outstanding debt and liabilities of the government.

On power tariff, the National Electric Power Regulatory Authority (Nepra) high-ups briefed the IMF team to ascertain the baseline tariff during which a heated debate occurred. For clinching the deal, the government will have to seek the consent of visiting IMF team to kick-start formal negotiations for a fresh bailout package because the IMF has not yet converted the negotiations into formal talks.

If the baseline tariff is agreed to be jacked up by Rs5 to 7 per unit, the average tariff standing at Rs29 per unit will go up to Rs35 or 36 per unit. The gas tariff will also go up by an average of over 60% from July 2024.

Originally published in The News