ISLAMABAD: The Pakistani government has informed the International Monetary Fund (IMF) that it will not pay interest of Rs220 billion on late payments to power plants being built under the China-led CPEC and will seek a formal waiver from Beijing in this regard. According to sources, the Energy Division briefed the IMF on the financial and operational situation of the power sector during the ongoing negotiations with the IMF. The government clarified that it recognizes only Rs250 billion as principal dues, while the amount due as interest of Rs220 billion is not being recognized. This amount is part of the total circular debt of Rs1.7 trillion. However, China has urged Pakistan in recent meetings to immediately establish a ‘circular account’ under the agreement made for CPEC energy projects so that timely payment of dues is possible. China and Pakistan agreed in the recent Joint Cooperation Committee (JCC) meeting that the tariffs of energy projects under CPEC will be maintained stable, disputes will be resolved through mutual consultation and no unilateral decisions will be taken by either party.
A spokesperson for the Energy Division declined to comment on the matter, saying that only the Finance Ministry is authorized to comment at this time. The IMF also raised questions during the talks on the decline in domestic power demand, the continuous increase in circular debt and the impact of floods.
The Energy Division said that another Rs500 billion may be added to circular debt during the fiscal year 2025-26, to eliminate which a budget subsidy of Rs540 billion is expected from the Finance Ministry.
Although the increase in circular debt in the last fiscal year was only Rs 45 billion, which was less than the expected Rs 340 billion, there is a fear of the situation worsening again in the current fiscal year. According to sources, the IMF appreciated the government’s efforts to improve the performance of the power sector and reduce the circular debt stock from Rs 2.42 trillion to Rs 1.6 trillion, but refrained from declaring this improvement permanent.
Meanwhile, the government has not yet allocated any budget funds for the gas sector, which has a circular debt of Rs 2.6 trillion, while Qatar has promised to renegotiate the LNG agreement, because LNG power plants are not consuming gas, which is causing supply disruptions.