Pakistan is planning to request China for relief on payments for the power projects that Beijing has been financing over the last eight years, Bloomberg reported on Tuesday.
The report also termed Pakistan as “the latest developing nation that’s struggling to repay debt under President Xi Jinping’s Belt and Road Initiative”.
According to the report, although Pakistan and China have held informal talks on easing the terms of the repayment of debts on about a dozen power plants, a formal request has not been made yet.
Quoting a source familiar with the matter, the report said that Pakistan is seeking to delay debt payments instead of lowering equity returns.
Chinese-financed power plants had originally been established in Pakistan’s power sector to resolve the chronic issue of power shortage in the country. However, since they have become operational, Pakistan’s power generation is now producing a surplus that Pakistan can neither handle nor afford.
This has created a debt trap of sorts for Pakistan as the government is the sole buyer of electricity and has to continue payments to power the producers even when they are not generating electricity.
To resolve this issue, the Government of Pakistan has negotiated new contracts with independent power producers (IPPs) for lower rates. However, the original borrowed amount for these projects still remains payable and is a burden on the exchequer.
The United States of America has criticized China for leading initiatives that draw developing countries towards debt traps. However, China has denied this allegation and has also canceled its interest-free loans to around fifteen developing nations that were to mature by the end of 2020.
While Chinese financing has helped Pakistan diversify fuel supplies, a negative consequence of this otherwise productive economic improvement has been excessive electricity and immensely high payments to power producers.
The report mentioned that after the conclusion of the deals that the government has made with the IPPs, Pakistan is likely to formally request China to defer its debt payments and other plants that were part of the latest power policy.