Another headache for Shehbaz Sharif government! China raises concerns over Pakistan’s overdue payments of $1.5 billion

The Chinese government has told Pakistan that it is concerned about the overdue payments worth $1.5 billion to the Chinese independent power plants (IPPs), which were developed under the China-Pakistan Economic Corridor (CPEC). China, in a recent meeting with Pakistan officials, expressed that currency exchange restrictions imposed by the State Bank of Pakistan have badly affected the coal import, a report in the Express Tribune said. 

In a letter to the Pakistan Planning Commission on March 13,  Special Assistant to Prime Minister (SAPM) (Coordination) Syed Tariq Fatemi said China’s Charge d’ Affaires Pang Chunxue has raised her concerns over the CPEC power projects. 

Fatemi in his letter said: “Overdue payments to the Chinese IPPs currently stand at $1.5 billion. This is causing huge concern among Chinese businesses.”  

Fatemi further wrote that Pang said that Chinese power plants at Hub, Sahiwal, and Port Qasim were facing currency exchange restrictions, which was causing difficulty in coal import. 

“These power plants require a specific-grade coal for electricity production. If the same is purchased from the local spot market, then Nepra requires that the price should not be higher than the price of imported coal, which is not feasible due to exchange rate fluctuation/ rupee devaluation,” Fatemi wrote in his letter. 

He further wrote that the capacity payment deduction still exists in Pakistan despite assurances given in the past, as a result, Pang said that these power plants are being penalised for not operating at full capacity. 

Pang told Fatemi that the power plants were running below full capacity owing to the difficulty in purchasing the requisite amount of coal for power production. 

She added that there were still gaps between the revolving fund established by the Pakistan side and the revolving account agreement signed by the two countries. Due to import curbs, many Chinese companies were encountering difficulties in customs clearance at Karachi Port, Pang told Fatemi. 

Foreign experts feel that the CPEC is a grand economic and diplomatic failure for Pakistan and China as both could not fulfill their economic goals and are currently staring at economic losses. 

China-Pakistan relations 

Pakistan, which is still recovering from devastating floods, has been struggling with its worst economic crisis in decades with its foreign exchange reserves at their lowest in 10 years. 

It has been looking forward to the International Monitory Fund (IMF) for funds.  

Pakistan has been trying to get the next tranche of a $6.5 billion loan facility with the IMF. But it has been struggling to meet the conditions set by the Washington-headquartered financial body. 

Amid all this turmoil, Pakistan on March 3 said that it had successfully got an addition $1.3 billion loan from China, in addition to $700 million from the China Development Bank in February, which would boost Pakistan’s forex reserves by about 20 per cent. 

Chinese debt piling up 

Pakistan owes $30 billion to the Chinese government and its financial institutions, which is just 30 per cent of its total foreign debt. The country also owes the IMF, the World Bank, and the Asia Development Bank. 

Despite the falling bilateral relations, some experts in China have said that Beijing will help Islamabad in overcoming the economic crisis. 

“At present, Pakistan does face risks similar to Sri Lanka, but I think it is unlikely that it will go bankrupt because China, Saudi Arabia, and other countries are all helping Pakistan. The problem now is that the IMF loan has not been implemented,” wrote Liu Zongyi, secretary-general of the Shanghai Institutes for International Studies. 

Last month, Wang Yi, director of the CCP Central Foreign Affairs Commission, said: “China firmly supports Pakistan in maintaining security and stability as well as achieving development and revitalisation, and stands ready to provide assistance within its ability to help Pakistan overcome temporary difficulties.”