Pakistan plans to ask China to ease payments for energy projects Beijing has funded for the past eight years.
Pakistan and China have spoken in informal talks about easing debt payments from around a dozen power plants, according to a person familiar with the matter who said Islamabad has not yet made a formal request. The parties have enlisted Beijing’s willingness to stagger debt payments rather than lowering returns on equity, the person said, asking for anonymity as the plan is private.
An enormous expansion of Chinese-financed power plants in Pakistan, which was originally intended to solve the electricity shortage, has resulted in a surplus that Islamabad cannot afford. Infrastructure projects funded by China’s initiative in other developing countries such as Sri Lanka and Malaysia have suffered from problems ranging from heavy debt to corruption.
China’s Ministry of Foreign Affairs and Finance, as well as the Pakistani Power Department, did not respond to requests for comments.
China has rejected US criticism that the initiative leads to debt traps while recognizing that countries have struggled to repay loans due to the pandemic-induced global recession. Last year, Beijing canceled interest-free loans to 15 African countries with a term until the end of 2020 and delayed other payments.
The Belt and Road program saw the signing of projects worth € 11 billion in Pakistan last year.
While Chinese funding has helped Pakistan diversify its fuel supply, it has also created an electricity surplus, which is problematic for the Islamabad government because it is the sole buyer and pays producers even when they are not producing. To address the problem, the government has been negotiating tariffs with power plants that produce around half of their electricity.
Pakistan will formally move to postpone debt payments to China, as well as other power plants that have been part of recent electricity policies, after entering into deals with these local electricity producers to lower electricity tariffs, the person aware of the matter said. China’s debt relief will also help the government cut electricity payments.
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