In informal talks, Pakistan and China discussed easing debt repayment terms for a dozen power plants, according to a person familiar with the matter, who said Islamabad had yet to made a formal request. The parties have examined Beijing’s willingness to stagger debt payments, instead of slashing stock returns, the person said, requesting anonymity because the plan is private.
A huge construction of Chinese-funded power plants in Pakistan, which was originally intended to solve its electricity shortages, has resulted in a surplus that Islamabad cannot afford. China’s initiative-funded infrastructure projects in other developing countries, such as Sri Lanka and Malaysia, have suffered from problems ranging from heavy debt to corruption.
A spokesperson for the Chinese Foreign Ministry said he was unaware of Pakistan’s plan to seek debt relief.
“The energy projects have provided Pakistan with a large amount of stable and low-cost electricity, effectively reducing the overall price of electricity in Pakistan,” the spokesperson said in a written response. “China-Pakistan energy cooperation has progressed smoothly and brought real economic and social benefits. ”
“China’s-funded Infra projects in other developing countries, such as Sri Lanka and Malaysia, have also suffered from problems ranging from high debt to corruption.”
Pakistan’s electricity division did not respond to a request for comment.
China has previously denied US criticism that the initiative leads to debt traps, while acknowledging that countries have had difficulty repaying their loans due to the pandemic-induced global recession. Last year, Beijing canceled interest-free loans to 15 African countries that were due to mature by the end of 2020, and it delayed further payments.
The Belt and Road program found new life in Pakistan last year with the signing of $ 11 billion in projects, most of which went to renovate the country’s rail system.
While Chinese funding has helped Pakistan diversify its fuel supplies, it has also resulted in a surplus of electricity, which is problematic for the government in Islamabad as it is the sole buyer and pays producers even when they are not. not produce. To help solve the problem, the government negotiated with power plants, which produce about half of its electricity, for lower tariffs.
Pakistan will officially ask for the postponement of debt payments to China, as well as other power plants that are part of the latest energy policy, after reaching agreements with these local power producers to reduce tariffs for the electricity, said the person with knowledge of the matter. China’s debt relief will also help the government reduce electricity payments.