- Pakistani Power Minister has called for a review of contracts with Chinese power producers due to high costs and inefficiencies in the current agreements.
- The Pakistani government is negotiating with China to reschedule $15 billion in power sector debt and ensure coal-fired plants use local coal.
Pakistani Minister for Power Awais Leghari has called for revising the contracts with Chinese power producers established to build and operate power plants in Pakistan. In a recent interview with Voice of America (VOA), Leghari stated that the current terms and conditions governing these Independent Power Producers (IPPs) need reassessment.
Leghari’s comments come from Pakistan, which faces significant financial challenges due to the terms of these contracts. The agreements, which were primarily set up over the past decade, require Pakistan to pay for the entire generation capacity of each plant, regardless of actual electricity consumption.
This arrangement has led to high costs for unused power and additional burdens from repaying project loans, compounded by inadequate industrial growth and persistent transmission losses.
The power sector reform task force, led by Leghari following a recent trip to China, is tasked with auditing all independent power plants in the country, both foreign and domestic. Experts suggest that this audit reflects Beijing’s reluctance to have its companies singled out for problems or to be alone in making concessions to Islamabad.
In addition to revising the IPP contracts, Pakistan is seeking to renegotiate its power sector debt with China and convert coal-fired power plants to use local coal. Leghari noted that such changes could lead to significant benefits, including reductions in electricity tariffs and financial relief.
Islamabad owes over $15 billion to Chinese power operators and is seeking to reschedule payments to ease its financial pressures and secure additional funding from the International Monetary Fund (IMF).
Leghari and Finance Minister Muhammad Aurangzeb recently visited Beijing to discuss these debt relief measures. The visit came after Pakistan reached a staff-level agreement with the IMF for a $7 billion loan program, pending final approval from the IMF board.
China has not publicly addressed Pakistan’s request for debt rescheduling. Still, reports indicate that China has agreed to switch three Chinese-owned power plants in Pakistan from imported to local coal.
This switch is expected to save Pakistan millions of dollars annually but may also lead to higher insurance costs and profit margins for Chinese investors. Additionally, local coal, which is less efficient and more polluting than imported coal, will require significant infrastructure and technical adjustments.
Leghari dismissed concerns about the environmental impact and potential investor backlash, emphasising that Pakistan values its relationships with investors and is committed to mutual consent in any agreements. He expressed confidence that the reforms and changes would benefit all parties involved.