Twitter
Advertisement

Chinese companies stare at true threat of CPEC failure - Pakistan's financial mismanagement

Pakistan has portrayed CPEC as a magic wand solution to its ailing economy and claimed that India was the biggest threat to it

Latest News
article-main
FacebookTwitterWhatsappLinkedin
The true threat to the success of the China-Pakistan Economic Corridor (CPEC) has made itself painfully apparent to Chinese investors - financial mismanagement. Chinese companies have issued a threat to the Pakistan government of blocking any further investments in its power sector, Pakistani media reports have said.
 
Pakistan's embattled power sector has long been plagued by circular debt and liquidity crises. This has meant power generators have had to go into debt spirals to continue generating electricity even as they wait out massive delays in payments from the country's Central Power Purchase Agency (CPPA).
 
Chinese companies working on four power projects under the CPEC framework are finding all this out first hand now. The Pakistani government had assured the Chinese government under the CPEC agreement that Chinese companies would not be exposed to the infamous financial indiscipline of missed payments by the power sector. As an antidote, Islamabad had promised to set up a revolving fund of 22 billion Pakistani Rupees (PKR) to ensure the Chinese companies are paid on time.
 
The four power projects that are in focus for the delayed payments are Port Qasim Power Plant, Sahiwal Power Plant, Engro Thar and UEP wind power plant, reports said.
 
However, the Finance Ministry has said it cannot to set up the fund and also refused to provide guarantee on the Chinese loans that are being used to build the power plants, Pakistani newspaper The News International has reported. The Finance Ministry has reportedly asked the CPPA to come up with the money for the revolving fund.
 
CPPA has expressed inability to find the PKR 22 billion as it circular debt is already at a whopping PKR 1.3 trillion.
 
The financial doldrums of the CPPA have had a crippling effect of Pakistan's own power sector, which is already well short of the energy demands of the country. Power generators sell electricity to the CPPA, which then distributes them through its different channels. Massive delays in payments by the CPPA mean the power generators are plunged into liquidity crises, and are hence forced to borrow to keep their operations running. This is a vicious cycle that Pakistan performs a rinse-and-repeat with periodically.
 
CPEC is a key part of Chinese President Xi Jinping's ambitious Belt and Road Initiative, which has been sold to many countries as a global connectivity project. However, the sheen has come off and the project is under increasing criticism in multiple countries for being financially unsustainable debt traps which eventually force countries to part with either resources or make uncharacteristic strategic concessions. CPEC has already been plagued by wide-ranging security problems.
 
Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
    Advertisement

    Live tv

    Advertisement
    Advertisement