Pakistan to seek debt relief from China Belt and Road loan

For all the power projects China finances over the past eight years in Pakistan, the Imran Khan-led government, which is facing economic turmoil, plans to ask Beijing for relief on payments.

According to a person aware with the matter, Pakistan and China, in informal talks, have discussed easing terms on the repayment of debt on about a dozen power plants. However, Islamabad hasn’t made a formal request yet.

The parties have canvassed Beijing’s willingness to stagger debt payments, as opposed to lowering equity returns, the person said, requesting anonymity as the plan is private.

An enormous build-out of Chinese-financed power plants in Pakistan, which was originally intended to solve its electricity shortages, has resulted in a surplus that Islamabad isn’t able to afford.

A spokesperson at China’s Ministry of Foreign Affairs said they aren’t aware of Pakistan’s plan to seek debt relief.

“Energy projects have provided Pakistan with a large amount of stable and low-priced electricity, effectively reducing the overall price of electricity in Pakistan,” the spokesperson said. “China-Pakistan energy cooperation has progressed smoothly and brought about real economic and social benefits.”

China has previously denied U.S. criticism that the initiative leads to debt traps, while acknowledging that countries have had difficulties repaying loans due to the pandemic-induced global recession.

Last year, Beijing canceled interest-free loans to 15 African countries due to mature by the end of 2020, and it has delayed other payments.

The Belt and Road program had found new life in Pakistan last year with the signing of $11 billion worth of projects, most of which went to revamping the nation’s railway system.

While Chinese financing has helped Pakistan diversify fuel supplies, it has also resulted in a surplus of electricity, which is problematic for the government in Islamabad because it is the sole buyer and pays producers even when they don’t generate.

Pakistan will formally make the request to defer debt payments to China, as well as other plants that were part of the latest power policy, after it concludes deals with those local power producers to reduce electricity tariffs, said the person with knowledge of the matter.