Pakistan’s outstanding payments to China-Pakistan Economic Corridor (CPEC) power projects climbed to Rs423 billion by the end of FY2025-26, as negotiations with Chinese power producers remain stalled over late payment surcharge (LPS), according to official documents.
The government has been unable to clear the dues because Chinese lenders and power companies are unwilling to waive around Rs170 billion in accumulated late payment surcharge. Islamabad wants the surcharge issue resolved before releasing more than Rs260 billion in outstanding principal payments for electricity purchased from CPEC power plants.
To ease the burden of expensive power-sector debt, the government is simultaneously exploring up to $10 billion in low-cost financing from bilateral partners, including Saudi Arabia. The proposed funding, targeted at an interest rate of around 1%, would be used to refinance costly debt associated with CPEC energy projects and could reduce electricity tariffs by an estimated 3 US cents per unit, although officials acknowledge securing financing on such favourable terms will be difficult.
Power Minister Sardar Awais Leghari has denied that seeking Saudi financing for the power sector was part of his recent visit to the Kingdom, stating that his meetings were focused on electricity sector reforms, transmission infrastructure and grid digitisation.
Government estimates show that electricity consumers are scheduled to bear about $30.6 billion in power producer debt repayments over the next 13 years, in addition to $5.7 billion in circular debt-related charges already being recovered through electricity bills. Debt servicing alone now accounts for nearly one-third of Pakistan’s average electricity tariff.
The documents further state that the Rs423 billion outstanding amount breaches Pakistan’s obligations under the 2015 CPEC Energy Framework Agreement, which requires timely payments to Chinese power projects regardless of recoveries from electricity consumers. Although a revolving account was established in 2022 to protect CPEC projects from circular debt, withdrawal limits have prevented it from meeting payment obligations.
Among the largest unpaid amounts are Rs85 billion owed to the Sahiwal coal-fired power plant, Rs76 billion to Port Qasim Power Plant, Rs64 billion to Hub Power Company, Rs54 billion to Thar Coal Block-I Power Generation Company, Rs43 billion to Engro Powergen Thar, Rs28 billion to the Matiari-Lahore Transmission Line, Rs17.5 billion to Karot Power Company and Rs11.5 billion to Thar Energy Limited.
Meanwhile, the Power Division is seeking cabinet approval to extend the Rs1.25 trillion banking facility created to reduce circular debt after its expiry in June, as the unresolved dispute with Chinese stakeholders has limited the government’s ability to fully utilise the financing arrangement.
