Pakistan May Seek $15 Billion Energy Debt Restructuring from China

Pakistan has prepared a proposal to seek a restructuring of $15.4 billion Chinese energy debt to lower electricity prices in the country. The government wants to expand the timeframe for making debt repayments, potentially reducing foreign currency outflows to $750 million annually and slashing energy prices by Rs. 3 per unit, reported Express Tribune. More details reveal that Pakistan wants a five-year extension on the repayment of Chinese energy debt. This extension would increase payment to China by an additional $1.3 billion, bringing the total to $16.6 billion by 2040. This proposal is yet to be shared with China. The situation for Pakistan seems dire as the current tariffs require debt servicing in the first 10 years, burdening consumers with higher costs. The Pakistani authorities are of the view that electricity prices will be reduced by Rs. 3 per unit if China extends the debt repayment plan by five years. If China agrees, the repayment period would extend to 2040, with initial relief reducing repayments to $1.55 billion by 2025, saving $580 million. However, the same payments are expected to increase from 2036 to 2040. The proposal has not yet been shared with Beijing. It is pertinent to mention here that Prime Minister Shehbaz Sharif is expected to visit China in the second week of June. Notably, the International Monetary Fund (IMF) has inquired about Pakistan’s plans to reduce electricity prices, which officials say depend on China’s agreement to reopen contracts. Local media reported on Wednesday that the federal government had shared with the IMF that it will increase the average electricity tariff based on annual adjustments from Rs. 5 to Rs. 7 per unit in July. However, Federal Minister for Power Sardar Awais Ahmad Khan Leghari responded on the same day that no talks have taken place with the IMF to increase the power tariff. In a message posted on X, the minister labeled news of an increase in power tariff as “misinformation” and said that talks with the IMF are focused on reforms in the power sector.