In a significant step to rebuild confidence with Beijing, the Government of Pakistan has released approximately Rs 100 billion to Chinese power generators, adjusting of the most severe concerns in the energy sector just days before Prime Minister Shehbaz Sharif’s visit to China.
Aimed at Easing Chinese Concerns
The payment, which reduces Pakistan’s outstanding liabilities to Chinese Independent Power Producers (IPPs) by nearly one-fourth, is seen as an attempt to signal Pakistan’s seriousness in honoring commitments under the China-Pakistan Economic Corridor (CPEC) framework.
As of June 2025, Pakistan owed Chinese power plants Rs 423 billion. After this settlement, the figure will drop to just over Rs 300 billion.
Officials from the Ministry of Finance confirmed that the funds have been released from the current year’s power sector subsidy. An additional Rs 8 billion has also been allocated from routine budgetary provisions for further support to Chinese power producers.
Diplomatic Timing Ahead of PM’s Visit
The timing of the disbursement is highly symbolic. Prime Minister Shehbaz Sharif is scheduled to travel to Beijing this week to attend the Shanghai Cooperation Organization (SCO) summit and an investment conference hosted by Pakistan’s embassy.
Clearing the dues before the trip helps in strengthening Islamabad’s bargaining position and demonstrates goodwill toward its most important economic partner.
Analysts keep on believing that this move could help in smoothing discussions on new Chinese investments in energy and infrastructure, while also reassuring Beijing that Pakistan remains committed to CPEC agreements despite ongoing financial constraints.
Read more: Government all set to reduce circular debt from Rs 2.3 trillion to just Rs 561 billion
Reducing Debt Pressure
Beyond its diplomatic value, the payment also has broader economic implications. For years, Pakistan’s power sector has been trapped in a vicious cycle of circular debt, where unpaid dues to power producers pile up due to low recoveries from consumers.
Presently, Pakistan’s circular debt stands at over Rs 2.3 trillion, and it is further straining public finances and discouraging foreign investors.
By reducing a portion of the debt owed to Chinese IPPs, Islamabad hopes to ease some of the mounting financial pressure. Officials note that since 2017, Pakistan has paid Rs 5.1 trillion to 18 Chinese IPPs — nearly 92% of their billed amount, including interest.
With this latest payment, the actual outstanding principal is now under Rs 300 billion, while the rest primarily consists of late payment surcharges.
Path Toward Stability
The Finance Ministry is also negotiating Rs 1.3 trillion in fresh borrowing from local banks to retire debt owed to both local and foreign power plants. If successful, this arrangement could stabilize the sector in the short term and reduce the risk of power shortages, which directly impact industries and households alike.
Experts caution, however, that while this Rs 100 billion payment sends the right message, Pakistan must also address the structural issues — including inefficiencies, line losses and poor bill recovery — to prevent the circular debt from resurfacing.
A Boost for Bilateral Relations
For now, the move is anticipated to create goodwill with China, restore investor confidence and provide breathing room for Pakistan’s fragile economy.
More importantly, it is strongly depicting a shift toward debt reduction and responsible financial management, which, if sustained, could help Pakistan gradually rebuild its credibility on the international stage.