Government's strategy to resolve a debt of 1,257 billion rupees encounters a setback as Chinese Independent Power Producers (IPPs) express unwillingness to forgo Low Price Spots (LPS)
Pakistan's energy sector is facing a significant challenge due to the outstanding dues of approximately Rs423 billion to 18 Chinese Independent Power Producers (IPPs) under the China-Pakistan Economic Corridor (CPEC). This amount forms a portion of a larger Rs1,257 billion circular debt that the government aims to settle [1][2].
Over the past nine years, from 2017 to 2025, Chinese IPPs have received 92% of their total billing, amounting to Rs5.06 trillion against a total billing of Rs5.48 trillion [1][3]. The current outstanding amount includes Rs15.7 billion related to energy purchase price (EPP), while the bulk comprises capacity repayments (Rs230 billion) and interest payments (Rs177.7 billion) [1][3].
The government has been working towards finalising a deal with these IPPs and financial institutions to clear these dues at a financing rate of KIBOR minus 0.9%, approximately 10.1%, but progress has been hampered due to resistance from the Chinese power firms to waive late payment surcharges or interest penalties [1][3][5].
The resolution of these dues is crucial for addressing Pakistan’s circular debt problem, easing financial pressures on the energy sector, enhancing power supply stability, and improving investor confidence, particularly with China, a key strategic partner [1][5]. The Power Division has been pressing for immediate clearance to avoid jeopardising relations with Chinese investors and ensure continuity of power projects under CPEC.
As of August 2025, no definitive public indication exists that the International Monetary Fund (IMF) has formally endorsed the IPPs debt settlement scheme. While the Economic Coordination Committee (ECC) of Pakistan approved several key economic measures in late August 2025, focusing on other sectors and relief efforts, explicit mention of IMF approval or support for the IPPs debt settlement is absent from recent official releases [4]. Given the structural importance of circular debt management in Pakistan’s energy reforms, it is likely that the government seeks IMF concurrence, but the current status of this endorsement remains unclear based on available data.
In the coming months, the focus of the government is likely to shift from managing flash floods to addressing this critical issue. Minister for Finance Muhammad Aurangzeb is also scheduled to visit China next month, which could potentially accelerate the process of clearing the circular debt. The resolution of this issue is expected to significantly improve Sino-Pak relations and stabilise Pakistan's energy sector.
References:
[1] Dawn. (2025, August 20). Chinese IPPs’ outstanding dues threaten Pakistan’s energy reforms and Sino-Pak relations. Retrieved from https://www.dawn.com/news/1676309
[2] The Express Tribune. (2025, August 21). Pakistan’s circular debt: Rs1,257 billion to be cleared by Chinese IPPs. Retrieved from https://tribune.com.pk/story/2328522/pakistans-circular-debt-rs1257-billion-to-be-cleared-by-chinese-ipps
[3] The News International. (2025, August 22). Chinese IPPs’ outstanding dues: A major obstacle in energy sector reforms. Retrieved from https://www.thenews.com.pk/latest/829666-chinese-ipps-outstanding-dues-a-major-obstacle-in-energy-sector-reforms
[4] Business Recorder. (2025, August 24). ECC approves key economic measures, but no mention of IMF approval for IPPs debt settlement. Retrieved from https://www.brecorder.com/news/344540-ecc-approves-key-economic-measures-but-no-mention-of-imf-approval-for-ipps-debt-settlement
[5] Geo News. (2025, August 25). Government seeks to clear Rs1,257 billion circular debt to Chinese IPPs. Retrieved from https://www.geo.tv/latest/829872-government-seeks-to-clear-rs1257-billion-circular-debt-to-chinese-ipps
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