No additional budget to settle $1.8 billion dues of Chinese power plants: Cash-strapped Pakistan assures IMF

Pakistan assures IMF it won't allocate extra budget to settle $1.8 billion dues of Chinese power plants under CPEC, amid economic revival efforts.

Pakistan has assured the IMF that it does not plan to allocate an additional budget to settle the USD 1.8 billion dues of Chinese power plants built under the China-Pakistan Economic Corridor, as the new government scrambles to revive the sinking economy, according to a media report.

An International Monetary Fund (IMF) team has been in Pakistan to complete the final review of the USD 3 billion Standby Agreement approved for the country last year before releasing the last tranche of USD 1.1 billion before the end of the programme next month.

The team has met officials who are also interested in getting a fresh loan to keep the dollar-starved nation’s economy afloat, The Express Tribune newspaper reported.

The IMF inquired about the government’s decision to allocate funds for the Chinese power plants over and above the budgeted amount of Rs 48 billion for this fiscal year, said the Ministry of Energy officials.

They added that the IMF was informed there was no plan to approve additional funds for retiring the outstanding debt of the Chinese power plants, the paper said.

The outstanding dues of power projects of the China-Pakistan Economic Corridor (CPEC) alarmingly increased to a record Rs 493 billion or USD 1.8 billion as of the end of January. The amount was Rs 214 billion or 77 per cent higher than June last year.

The CPEC connects Gwadar Port in Pakistan’s Balochistan with China’s Xinjiang province. The build-up of Chinese debt violates the 2015 Energy Framework Agreement, which binds Pakistan to allocate sufficient money in a special fund to keep Chinese investors immune from the circular debt.

However, the government is allocating only Rs 48 billion annually with a condition to withdraw a maximum of Rs 4 billion per month. The Fund is sceptical about the government’s claim of restricting losses due to non-recovery of bills to Rs 263 billion in this fiscal year, as the amount has already almost reached Rs 200 billion in just seven months.

This has serious implications for restricting the overall circular debt to Rs 2.31 trillion by June this year. Sources said the IMF appeared sceptical about the long-term success of the government’s anti-theft campaign and the military’s involvement in monitoring the performance of power distribution companies.

The government also faced questions about a record Rs 7 per unit increase in electricity prices in March due to the energy ministry’s faulty policy of using expensive imported fuels, the paper reported quoting its sources. Pakistan’s mismanaged energy sector is one of the top worries for the IMF as the new government scrambles to put its house in order and resurrect the sinking economy.

It would have to face much tougher conditions to secure the new loan which would increase inflation.