Govt Faces Challenges in Circular Debt Settlement with Chinese IPPs
ISLAMABAD, August 20, 2025 — The government’s plan to resolve Pakistan’s circular debt faces fresh hurdles as Chinese Independent Power Producers (IPPs) under the China-Pakistan Economic Corridor (CPEC) have shown reluctance to waive Late Payment Surcharges (LPS) and outstanding dues, sources confirmed on Tuesday.
The International Monetary Fund (IMF) has yet to endorse the procedural framework for clearing Rs1,257 billion in circular debt, a plan earlier finalised with commercial banks but still pending execution.
According to officials, both the Development Finance Corporation (DFC) and Chinese IPPs are unwilling to forgo interest payments, complicating the government’s efforts to provide tariff relief. Talks with additional IPPs are ongoing, but it is still uncertain how much impact fresh negotiations will have.
Prime Minister Shehbaz Sharif is expected to visit China soon, while Finance Minister Muhammad Aurangzeb may follow with a visit next month as Islamabad plans to launch a Panda Bond in the coming months.
Outstanding Dues to Chinese IPPs
Currently, 18 Chinese IPPs operate under CPEC. From 2017 to 2025, their total billing reached Rs5.48 trillion, out of which Rs5.06 trillion was paid, leaving an outstanding balance of Rs423 billion — equal to around 92% of dues already cleared.
The largest outstanding amounts are owed to:
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Huaneng Shandong Ruyi (coal) – Rs87 billion
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Port Qasim Electric Power – Rs85 billion
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China Power Hub Generation – Rs70.4 billion
Breakdown of the Rs423 billion dues:
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Rs15.71 billion – Energy Purchase Price (EPP)
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Rs230 billion – Capacity payments
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Rs177.7 billion – Interest payments
Officials confirmed that the Central Power Purchase Agency (CPPA) is finalising arrangements with commercial banks. Once the deal is approved, disbursement of the Rs1,257 billion package is expected within 15 days.
Way Forward
Authorities stress that Pakistan has already made substantial payments to Chinese IPPs over the years and is committed to resolving the matter smoothly. However, with flood relief efforts also underway, the finalisation of this debt settlement remains a top priority for the government.
The deal with banks has reportedly been struck at a rate of KIBOR minus 0.9%, meaning an effective rate of around 10.1%.
