Ahead of Prime Minister Shehbaz Sharif’s upcoming visit to China, Chinese Independent Power Producers (IPPs) have declined to waive Late Payment Surcharges (LPS) alongside outstanding dues in the government’s plan to settle the circular debt, according to a report by The News. The International Monetary Fund (IMF) has yet to endorse the procedural framework for clearing Rs1,257 billion in circular debt through a deal finalized with commercial banks, leaving the transaction pending.
Officials confirmed that both the Development Finance Corporation (DFC) and the IPPs are unwilling to forgo interest payments. This creates a hurdle for the government, as further tariff relief depends on the waiving of these charges. While talks with other IPPs are ongoing, it remains unclear how much of a reduction in tariffs can be achieved.
This stuck amount has emerged as a major stumbling block ahead of the Prime Minister’s visit to China, which will also be followed by a visit from Finance Minister Muhammad Aurangzeb. Pakistan intends to launch a “Panda bond” in the coming months, making the resolution of this issue a high priority.
“The Chinese IPPs are not letting go of the LPS, so the Ministry of Power may have to get approval to pay interest along with the circular debt amount,” top official sources confirmed to The News on Tuesday.
The Central Power Purchase Agency (CPPA) is finalizing arrangements to strike the deal, after which the Rs1,257 billion disbursement will be made within 15 days.
There are a total of 18 Chinese IPPs under the China-Pakistan Economic Corridor (CPEC). In the last nine years (2017 to 2025), their total billing was Rs5.48 trillion, of which they received payments of Rs5.06 trillion. This leaves an outstanding amount of Rs423 billion, indicating that the Chinese IPPs have received 92% of their billing amount over this period.
The highest outstanding amounts are owed to Huaneng Shandong Ruyi (coal) at Rs87 billion, Port Qasim Electric Power at Rs85 billion, and China Power Hub Generation at Rs70.4 billion. The total outstanding amount of Rs423 billion includes an Energy Purchase Price (EPP) of Rs15.71 billion, a capacity repayment amount of Rs230 billion, and interest payments of Rs177.7 billion.
Officials from the Ministries of Finance and Power said that all arrangements were in place and the deal with the banks was likely to be finalized soon, despite the current focus on the flash floods in different parts of the country. One official mentioned that the deal was struck at a rate of KIBOR minus 0.9%, which would put the rate at around 10.1%.
