FinMin Aurangzeb’s $15b energy debt discussions with China rescheduled

Finance Minister Muhammad Aurangzeb’s visit to China for talks to restructure the $15 billion energy debt has been rescheduled to the third week of this month due to other engagements of the Chinese authorities.

In place of the finance minister, Planning Minister Ahsan Iqbal has taken the letters on behalf of Prime Minister Shehbaz Sharif to Beijing. The prime minister has requested the Chinese leadership to constitute a working group to resolve the issues related to $15 billion Chinese energy debt payments and clearance of $1.8 billion outstanding dues of the Chinese power plants.

“The Chinese leadership is busy with the third plenum till July 18th, so the visit is now being scheduled for the week after”, said Finance Minister Muhammad Aurangzeb after the meeting of the National Assembly Standing Committee on Finance.

Earlier, Prime Minister Shehbaz Sharif had asked the minister to take a letter from him to the Chinese leadership with a request to reschedule the energy debt. The idea was that the finance minister would fly along with the planning minister as the premier’s special envoy.

“On behalf of the Prime Minister, I am delivering the letters to the Chinese leadership during my ongoing visit,” said Iqbal while talking to The Express Tribune. But he said that the finance minister would also visit once the Chinese leadership is free from the plenum meetings.

Iqbal had left for Beijing on Wednesday to participate in the Global Development Initiative (GDI) meetings. Aurangzeb could not accompany the planning minister as the Pakistani mission in Beijing could not secure the meetings with the Chinese leadership.

The Pakistani embassy in Beijing had advised that the finance minister should wait until the Chinese leadership gets free from its other scheduled business.

Last Saturday, the prime minister had said that the Minister for Finance will accompany the planning minister and will carry letters from the prime minister for the Chinese leadership on loan reprofiling and coal conversion of the Chinese power plants.

The erratic decision by the prime minister put the Pakistani embassy in Beijing in an awkward situation to try to secure the meetings in an emergency. Another cabinet member ruled out that the Chinese authorities have refused to entertain the finance minister.

China has set up 21 energy projects in Pakistan with a total cost of $21 billion, including about $5 billion in equity. The Chinese investors obtained loans for the projects at an interest rate equal to the London Interbank Offered Rate (Libor) plus 4.5%. Against the remaining Chinese energy debt of over $15 billion, payments by 2040 would total $16.6 billion, according to government sources.

The Pakistani proposal involves extending debt repayments from 10 to 15 years. This would reduce the outflow of foreign currency by about $550 million to $750 million per annum and decrease prices by Rs3 per unit.

According to the existing IPP deals, the current power tariff structure requires debt servicing repayments during the first 10 years, leading to a significant burden on consumers who are paying the interest and principal of these loans through higher tariffs. But due to the extended repayment period, the country will also have to make an extra $1.3 billion payment to China, sources said.

It is not clear what Pakistan is going to offer to China in return for securing debt restructuring. China’s two biggest concerns are security of its national and clearance of $1.8 billion dues that Pakistan has not paid against the power that it purchased from around one-dozen Chinese power plants.

If China agrees to debt restructuring, the repayment period will be extended to 2040, including interest payments. According to Pakistani authorities, repayment would be $600 million less this year and can be reduced to just $1.63 billion after restructuring. For 2025, debt repayments would decrease from $2.1 billion to $1.55 billion—a benefit of $580 million, sources said. However, the upfront relief would result in more repayments from 2036 to 2040.

In April, the prime minister had ordered all imported coal-fired power plants, including three Chinese plants, to convert to local coal to save $800 million annually and reduce consumer rates by Rs3 per unit. At least five major imported coal-fired power plants with a total capacity of 5,940 megawatts are affected, including three Chinese-owned plants in Sahiwal, Port Qasim, and Hub, totaling 3,960 MW.

During Prime Minister Shehbaz Sharif’s last month meeting with the President Xi Jinping, the Chinese leadership had indicated reviewing the possibility of using either the blend of local or imported coal or converting to the local coal.

Through these letters, Pakistan has requested China to find a win-win solution to the problems of Chinese energy debt repayments and the coal conversions.