Pakistan plans to seek debt relief on Belt and Road loan from China

February 9, 2020 (MLN): Pakistan is planning to ask China for relief on payments for power projects Beijing financed over the past eight years, under the Belt and Road Initiative (BRI).

A person familiar with the matter told Bloomberg that informal talks between China and Pakistan have been held in which the two sides have discussed easing terms on the repayment of debt on about a dozen power plants, though the government hasn’t made a formal request regarding a matter as yet. The parties have canvassed Beijing’s willingness to stagger debt payments, as opposed to lowering equity returns, requesting anonymity as the plan is private.

China's investment in a large number of power plants in Pakistan was intended to address the power shortages, but this has resulted in a surplus which Islamabad isn’t able to pay. However, China’s Ministry of Foreign Affairs and Ministry of Finance, as well as Pakistan’s power division, didn’t respond to Bloomberg’s request for comment. Similar projects in other developing nations, such as Sri Lanka and Malaysia, have suffered issues ranging from heavy debt loads to corruption.

In 2013, the governments of China and Pakistan launched the Belt and Road Initiative (BRI), or the China-Pakistan Economic Corridor that primarily concentrates on infrastructure and energy, with an estimated budget of more than $62 billion.

 To note, last year, Pakistan and China signed up to $11 billion worth of projects under the Belt and Road Program, most of which went to revamping the Pakistan’s railway system

According to Bloomberg, while Chinese financing has helped Pakistan diversify its fuel supply, it has also led to a power glut which is problematic for the government because it is the sole buyer and pays producers even when they don’t generate. To help tackle the issue, the government has negotiated with power plants, which produce roughly half of its electricity, to lower rates.

Quoting a person privy to the matter, Bloomberg reported that Pakistan will formally make the request to defer debt payments to China, as well as other plants that were part of the latest power policy after it concludes deals with those local power producers to reduce electricity tariffs. Debt relief from China will also help the government reduce power payments.

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Posted on: 2021-02-09T18:08:00+05:00