No let-up in rise of circular debt: Amount owed to Chinese IPPs crosses Rs400bn mark

ISLAMABAD: The circular debt owed by Independent Power Producers (IPPs) of Chinese companies has crossed the Rs400 billion mark, making it hard for the Chinese to continue other power sector projects vigorously.

The circular debt for the overall power sector had escalated and crossed the Rs2.6 trillion mark by the end of October 2023. “There is no possibility to restrict piling up of circular debt which is going up by Rs75 billion on a monthly basis,” top official sources confirmed while talking to The News here on Friday.

The pace of accumulation of circular debt for Chinese IPPs is moving in the same direction as the monster of debt is rising daily. Now the Chinese are worried about how to resolve this outstanding debt with increasing burden monthly. A few months ago, the circular debt of Chinese IPPs was hovering around Rs250 to Rs300 billion but after payment of some instalments by the previous government the burden was reduced however, it has ballooned again.

“There is a potential threat that if the circular debt was not resolved amicably then the Chinese would slow down progress on other power projects,” said one official. Another official said that the Power Ministry took up the issue with the Chinese side and requested to prolong the maturity of the debt-to-equity ratio on Chinese IPP projects.

There is no easy solution, especially in the case of Chinese power plants being run on imported coal and RLNG as their capacity repayment choked the power sector by increasing the woes of voiceless customers. The Chinese are so far not ready to repay capacity repayments in local currency making it hard for dollar-scarce country to repay them in the wake of a depreciated rupee against the dollar. Repayments are linked with dollar rate parity against the rupee. Compared with imported RLNG, imported coal became expensive by over 450 percent posing no easy solution to reduce the capacity repayment charges. “The government may request the Chinese side to opt for domestic coal instead of imported variety to reduce the cost of power generation,” said the official.

The circular debt was Rs2.3 trillion till the end of June 2023 but it climbed up by Rs250 billion and by October 30, 2023 stood at Rs 2.6 trillion. The government shared revised estimates with the IMF under which the circular debt would escalate by Rs385 billion by the end of December.

The amount payable to power producers stands at Rs1.75 trillion and the losses of the power distribution companies in the first four months of the current fiscal year stood at Rs76 billion. Overall, the power sector is in a complete mess and there appears to be no relief is in sight despite raising tariffs through baseline tariffs, fuel price adjustments, surcharges and quarterly tariff adjustments. This scribe contacted power ministry high-ups but got no response.