NEW DELHI: Pakistan is grappling with a deepening energy and financial crisis, with mounting concerns that the proposed second phase of the China-Pakistan Economic Corridor (CPEC) could worsen existing economic pressures. According to an Asia Times report, the country’s power sector circular debt reached 1.89 trillion rupees ($6.7 billion) by February, rising by nearly 200 billion rupees in just two months. Of this amount, 543 billion rupees is linked directly to CPEC power projects.
The International Monetary Fund (IMF) has warned that the growing debt burden threatens Pakistan’s economic stability. A key issue is the “take-or-pay” agreements signed with Chinese independent power producers (IPPs), which require Pakistan to pay fixed capacity charges regardless of actual electricity consumption. As a result, annual capacity payments have surged from 384 billion rupees before CPEC to 2.1 trillion rupees today.
The problem is compounded by reliance on imported coal. Major CPEC-backed power plants at Sahiwal, Port Qasim and Hub depend on coal imports from Indonesia, South Africa and Australia. Rising global coal prices have pushed up electricity tariffs, hurting industries and consumers alike. Many businesses struggle to remain competitive, while unpaid electricity bills continue to fuel the circular debt crisis.
Islamabad has attempted to ease the burden by allocating 565 billion rupees to settle overdue payments owed to Chinese energy projects and requesting a waiver of 170 billion rupees in late-payment charges. Chinese operators, however, have rejected the proposal, fearing it could trigger demands for similar concessions across other Belt and Road projects worldwide. At the same time, the IMF has opposed efforts to make additional payments without renegotiating contracts.
CPEC 2.0 aims to shift investment away from coal and toward renewable energy, including solar, wind, hydropower and energy storage. While earlier projects added 9,504 megawatts to Pakistan’s grid and Chinese firms are expanding into sectors such as electric vehicle manufacturing, critics argue that key lessons remain unlearned. (IANS)
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