The federal government’s ambitious Rs. 1.275 trillion circular debt management plan has hit a major roadblock after Chinese-funded CPEC power projects refused to accept a discount on their Rs. 475 billion in outstanding dues, according to local media reports.

The government is now weighing its options, which include renegotiating the terms of the CPEC projects or proceeding with payments only if the Chinese independent power producers (IPPs) agree to a discount. If no agreement is reached, officials say a new plan will be needed to clear the full amount owed, without any deductions.

Chinese IPPs and transmission companies have reportedly not received payments for some time. The government is keen to resolve at least part of the outstanding dues before Prime Minister Shehbaz Sharif’s expected visit to China in August or September 2025.

To fund the circular debt plan, eighteen banks—including HBL, NBP, UBL, MCB, and Meezan Bank—have signed agreements with the Central Power Purchasing Agency (CPPA-G). The government has approved the Power Division’s proposals, authorizing CPPA-G to sign the Circular Debt Restructuring, Settlement, and Subscription Agreement (CDRSSA), raise funds, and allocate payments.

Of the total, Rs. 267 billion already budgeted under DISCO equity will be released immediately, minus any transfers to K-Electric. An additional Rs. 393 billion will be provided through a technical supplementary grant.

CPPA-G is also authorized to repay government-owned power plants and, if funds remain, to clear dues of Uch-I and Uch-II for onward payment to OGDCL. The plan also includes retiring Rs. 683.25 billion in Power Holding Limited (PHL) debt.