Pakistan: The Pakistan Ministry of Energy has submitted a request to the government for Rs48 billion to clear outstanding dues related to energy projects under the China-Pakistan Economic Corridor (CPEC). This request, however, falls short of the total backlog, which has already accumulated to Rs487 billion.
The request for funds was made as part of the ministry’s demand for subsidies for the fiscal year 2024-25, with a total of Rs1.234 trillion sought for various subsidies. The Rs48 billion allocated for CPEC projects accounts for only 4% of the total subsidies requested.
The Pakistan Energy Revolving Account (PERA) was established by the government in December 2022, with an annual allocation of Rs48 billion to address the energy payments backlog. However, Chinese authorities have raised concerns about the slow implementation of CPEC agreements, linking the provision of new commercial loans to the clearance of energy payments to their power plants.
The accumulation of Chinese debt violates the 2015 Energy Framework Agreement, which obligates Pakistan to allocate sufficient funds to a special fund to protect Chinese investors from circular debt. Despite this, the government has allocated only Rs48 billion annually, with a condition to withdraw a maximum of Rs4 billion per month.
The outstanding dues of power projects have increased to Rs487 billion or $1.8 billion as of the end of February, significantly higher than the previous June. Chinese power plants have billed Rs1.6 trillion for energy sales over the past 16 months, but Pakistani authorities have only cleared Rs1.3 trillion or 80% of the invoices.
The government faces challenges in maintaining Chinese energy arrears at current levels due to fiscal constraints, with sources suggesting that Chinese authorities believe the PERA is not an adequate alternative to the Revolving Fund Pakistan committed to opening when finalizing CPEC deals.
Despite efforts to control circular debt, which has reached Rs2.7 trillion, Pakistan has promised the IMF to keep the debt at Rs2.310 trillion by June 2024, requiring settlement through price increases or budget subsidies for any increase above this threshold.
