Govt’s Rs1,257bn debt plan stalls as Chinese IPPs refuse to waive LPS

ISLAMABAD, AUG 20 (DNA): Ahead of Prime Minister Shehbaz Sharif’s upcoming visit to China, Chinese Independent Power Producers (IPPs) have declined to waive Late Payment Surcharges (LPS) alongside outstanding dues in the government’s plan to settle the circular debt.

The International Monetary Fund (IMF) has yet to endorse the procedural framework for clearing Rs1,257 billion in circular debt through a deal finalised with commercial banks — a transaction that remains pending.

Officials confirmed that both the Development Finance Corporation (DFC) and IPPs are unwilling to forgo interest payments. The government faces hurdles as further tariff relief depends on waiving these charges. Talks with additional IPPs are ongoing, but it remains unclear how much impact fresh negotiations will have in reducing tariffs.

Prime Minister Shehbaz Sharif is all set to visit China. Minister for Finance Muhammad Aurangzeb is also likely to visit China next month, as Islamabad wants to launch a Panda bond in the next few months.

This stuck amount of Chinese IPPs has surfaced as a major stumbling block so far. The Pakistani side intends to move ahead to resolve it.

“The Chinese IPPs are not letting go of the LPS, so ministry of power may have to get approval to pay interest along with circular debt amount,” top official sources confirmed while talking to The News on Tuesday.

The Central Power Purchase Agency (CPPA) is making final arrangements to strike the deal. After the deal, disbursement of Rs1,257 billion will be made within 15 days.

There are a total of 18 Chinese IPPs under China-Pakistan Economic Corridor (CPEC). In the last nine years, from 2017 to 2025, their total billing stood at Rs5.48 trillion and received payments of Rs5.06 trillion. The outstanding amount stood at Rs423 billion. This indicates Chinese IPPs got 92% of their billing amount in the last nine years.

The highest outstanding amount from Chinese IPPs owed to Huaneng Shandong Ruyi (coal) to Rs87 billion, Port Qasim Electric Power Rs85 billion and China Power Hub Generation Rs70.4 billion.

Out of the total amount of Rs423 billion, the break-up shows there was an amount of Rs15.71 billion on account of Energy Purchase Price (EPP). There is a capacity repayment amount of Rs230 billion and interest payment of Rs177.7 billion. This outstanding amount comes at more than Rs423 billion of Chinese IPPs.

When contacted, officials from ministry of finance and ministry of power said all arrangements were in place and the deal was likely to be finalised with the banks soon. One official said all the focus was on flash floods after heavy rains in different parts of the country, but a deal to erase circular debt of Rs1,257 billion would be materialised soon. Another official said the deal was struck at a rate of KIBOR minus 0.9%, meaning its rate would be hovering at 10.1%.