Pakistan clears Rs100bn Chinese debt ahead of PM's China visit

August 26, 2025 (MLN): Pakistan has moved to settle over Rs100 billion in outstanding payments to Chinese power generation companies, according to Ministry sources.

The payment is expected to be processed today (Tuesday) as Prime Minister Shehbaz Sharif prepares for his official visit to China.

The substantial payment represents nearly 25% of Pakistan's total debt obligations to Chinese power producers and comes just days before the Prime Minister departs for Beijing on August 31, 2025.

During his visit, PM Sharif will participate in the Shanghai Cooperation Organization (SCO) Heads of State summit and attend an investment conference hosted by Pakistan's embassy in China.

Sources within the government revealed that the Prime Minister had specifically directed the Finance Ministry to ensure the Rs100bn payment was completed by August 25, demonstrating the high priority placed on addressing this financial obligation before the diplomatic engagement.

As of June 2025, Pakistan owed approximately Rs423 billion to power projects under the China-Pakistan Economic Corridor (CPEC) framework.

With this Rs100bn payment, the outstanding amount will decrease to just over Rs300bn.

An additional Rs8bn has also been allocated from the regular budget for Chinese power producers.

The funds are being released from power sector subsidies that were specifically allocated in the current fiscal year's budget, according to government officials familiar with the matter.

Historical Context and Payment Breakdown

Since 2017, Pakistan has paid Rs5.1 trillion in energy costs to 18 Chinese power facilities, representing 92.3% of total billed amounts, including interest charges.

The government officials believe the actual remaining energy costs are less than Rs300bn, with the remainder consisting of late payment penalties.

The Rs100bn payment will be distributed among approximately 16 Chinese CPEC energy projects, including coal-fired power plants. Coal-based projects are expected to receive between Rs15-16bn each, while other facilities will receive Rs2-3bn each.

The payment addresses violations of the 2015 CPEC Energy Framework Agreement, which requires Pakistan to fully settle all dues regardless of whether the government can recover costs from end consumers.

The agreement also mandated creation of a revolving fund equal to 21% of power invoices to protect Chinese companies from Pakistan's circular debt crisis.

Pakistan is currently arranging a Rs1.275 trillion loan from 18 commercial banks to address the overall circular debt problem, which reached Rs1.614tr by June 30, 2025.

However, this larger debt restructuring plan faces obstacles as the government insists that CPEC projects agree to discounts on their outstanding payments before proceeding.

The circular debt owed specifically to CPEC power producers has increased from Rs430bn in June to approximately Rs475bn currently, highlighting the ongoing nature of this financial challenge.

Recent correspondence from Wang Dongfeng, CEO of Port Qasim Electric Power Company (PQEPC), warned the Finance Minister that continued payment delays have created "significant discontent" among project shareholders from China and Qatar.

The letter noted that outstanding dues give the company grounds to suspend operations under their Power Purchase Agreement, which could trigger defaults under loan agreements backed by Pakistan's sovereign guarantee.

This payment represents a crucial step in maintaining the strategic partnership between the two nations while addressing one of Beijing's primary concerns about Pakistan's reliability as an economic partner under the CPEC framework.

Copyright Mettis Link News