Pakistan seeks $10 billion financing to cut energy debt

Pakistan is seeking around $10 billion in cheaper financing to manage its growing energy-sector debt and reduce the cost of electricity for consumers.

The government is exploring loans from bilateral partners to repay expensive debt linked to Chinese power projects established under the China-Pakistan Economic Corridor (CPEC).

Outstanding payments to CPEC power plants have reached nearly Rs423 billion due to unresolved issues related to late payment surcharges.

Officials said the proposed financing would help settle dues owed to Chinese energy companies and create room for reducing electricity tariffs.

Pakistan is considering obtaining loans with an interest rate of around 1%. The funds would be used to replace costly energy loans with cheaper financing options.

Under the plan, the government aims to secure annual financing between $1.1 billion and $1.4 billion from 2027 to 2034. Repayment would begin after a three-year grace period and continue over 15 years.

The Power Division said debt servicing costs have become a major reason behind high electricity prices. A significant portion of the average power tariff is linked to fixed debt payments.

The government believes reducing expensive debt could help lower electricity costs and improve the financial condition of the power sector.

Pakistan is also facing difficulties in resolving disputes with Chinese power producers over late payment charges. Chinese companies have reportedly been reluctant to waive a large amount in surcharge payments.

The unpaid dues include payments to several major CPEC projects, including coal-fired power plants and transmission projects.

The government is working on extending financial arrangements to manage circular debt and improve payments to power producers.