China rejects Pakistan’s waiver request

Chinese lenders and Independent Power Producers (IPPs) have turned down Pakistan’s request to write off nearly Rs 170 billion in late-payment surcharges. The refusal highlights the growing friction between the two long-standing allies as Pakistan struggles to navigate a staggering power-sector circular debt that continues to drag down its broader economy. The unpaid dues owed to 18 Chinese-backed power generation projects established under the CPEC have now increased to approximately Rs 423 billion. The financial bottleneck stems from a combination of structural inefficiencies within Pakistan’s domestic energy distribution network and systemic delays in clearing operational invoices.

Under the original 2015 CPEC Energy Framework Agreement, Pakistan was legally obligated to ensure full and timely payments to power producers, backed by a designated revolving fund to cushion investors against domestic liquidity shortfalls. As payment deadlines were repeatedly missed over recent years due to severe foreign exchange constraints, contractual interest penalties accumulated to the tune of Rs 170 billion. While local power suppliers previously accepted debt-restructuring deals and fee write-offs to ease the burden on state coffers, Chinese energy firms have maintained a strict stance, citing global precedent and financial commitments to their own institutional lenders.

This refusal creates an immediate impasse for Pakistan’s Ministry of Energy and financial regulators. The federal government had structured a massive Rs 1.225 trillion banking facility intended to retire the country’s broader circular debt stock. However, disbursement terms mandated that power producers accept renegotiated terms or offer discounts on late-payment fees before receiving principal clearances. Because the Chinese IPPs declined to waive the surcharges or offer similar concessions, billions in funds remain locked, leaving power plant operators facing severe liquidity squeezes that threaten regular fuel procurement and plant operation. Total Outstanding Dues: Rs 423 Billion. Requested Surcharge Waiver (Rejected): Rs 170 Billion. Principal Energy Cost Owed: Rs 253+ Billion. Pakistani negotiators are exploring alternative financial maneuvers to manage the expensive debt burden. Seeking low-interest bilateral funding including potential long-term loan packages in the range of $6 billion to $10 billion from partner nations like Saudi Arabia to retire high-cost Chinese energy loans. Requesting cabinet approval for extensions on expiring domestic banking facilities to prevent immediate default claims. Balancing the debt burden through structured tariff pass-throughs, though consumer capacity to absorb higher electricity prices remains extremely strained.

The dispute underscores a delicate transition in the CPEC bilateral relationship. While both nations remain deeply committed to long-term strategic partnership and Phase-Two infrastructure development, commercial reality is setting a firmer baseline. Moving forward, resolving the sovereign debt backlog will require transparent structural reforms within Pakistan’s power distribution setup rather than relying on debt waivers from foreign investors.