Key Takeaways:
– Pakistan seeks an 8-year extension on $17 billion CPEC and nuclear power plant loans.
– Negotiations include extending repayment periods and reducing interest rates.
– Potential electricity price reductions of Rs 6-7 per unit if the request is approved.
Loan Extension Request
Pakistan’s Finance Minister, Muhammad Aurangzeb, has requested an 8-year extension on loan repayments related to the China-Pakistan Economic Corridor (CPEC) and the energy sector. The total loans for these projects amount to approximately $17 billion.
Meetings with Chinese Officials
Aurangzeb has engaged in discussions with Chinese authorities to seek not only an extension of the repayment period but also a reduction in interest rates. If successful, these changes could lower electricity prices in Pakistan by 6-7 rupees per unit, and by 3-4 rupees per unit specifically from Chinese power plants.
Economic Impact
Approving Pakistan’s request could result in a 5% overall reduction in the cost of these loans. The country currently faces over $2 billion in energy sector loan repayments, which it hopes to defer amid economic difficulties.
Chinese Companies’ Stance
Despite the negotiations, Chinese power companies have indicated they are not willing to renegotiate existing power purchase agreements. The restructuring of energy debt, they argue, should be left to discussions between Chinese banks and Pakistani authorities.
Government Efforts
Pakistan’s government aims to convert the interest rates from the Secured Overnight Financing Rate (SOFR) to the Shanghai Interbank Offered Rate (SHIBOR), seeking an overall reduction in the cost of debt by about 5%. Extending the repayment period from 10 to up to 18 years is also on the table.
Debt and Tariff Concerns
In the current fiscal year, Pakistan has $2 billion in scheduled energy debt repayments to China. The government has announced a new average electricity price of Rs 33 per unit, with significant pressure from consumers and industrialists to renegotiate power purchase agreements to avoid high idle capacity payments.
