Pakistan is considering its options to request a five-year extension in the term of Chinese Independent Power Producers’ (IPPs) outstanding loan of $15.36 billion, in light of the arrival of an International Monetary Fund (IMF) team to assess Islamabad’s capacity to repay the mounting debt.
Any changes to the current contracts must have the approval of both the Chinese government and the IPPs that are doing business there. This might mean protracted talks to achieve the desired outcomes.
The official calculations carried out by the relevant ministries, which are presently being reviewed at the highest level in order to submit requests to China, indicate that in the event that the Chinese IPPs debt received an extension in the term of the current debt, the outstanding liability would increase from $15.36 billion to $16.61 billion, representing a $1.3 billion increase over a five-year period. Over a five-year period, the cost of the IPP loan will increase by Rs377 billion in rupees.
The Pakistani government has presented arguments to persuade the higher authorities, claiming that the present electricity pricing structure concentrates debt service obligations in the first ten years, subjecting customers to a significant financial burden during the project’s early phase. An extended length of time can be used to offload and stagger the burden by extending the loan tenor.
Under the China-Pakistan Economic Corridor (CPEC), 21 IPP projects, comprising eight coal, four hydel, eight wind, and one transmission line projects, are now under development in Pakistan. Chinese Infrastructure Private Partnerships have $15.36 billion in outstanding debt.
Pakistan will need to begin intensive discussions with the Chinese IPPs and the Government to Government (G2G) level in order to request an extension in the term of the IPPs’ loan. It may lessen the financial strain on customers, enhance their cash flow, and propel Pakistan’s economy forward. The financing cost would increase by $1.257 billion following protracted discussions with lenders, IPPs, and contract modifications.
