Pak caught in China's debt-trap diplomacy, seeks relief from 'iron ally': Report

Pakistani officials are also reportedly asking their Chinese counterparts to decelerate agreed plans to build even more power plants that would add to the overcapacity problem.
The Pakistani government has recently re-approached Chinese officials on the issue but no information has leaked out in the public domain on their exchanges. (Reuters/HT Archive)
The Pakistani government has recently re-approached Chinese officials on the issue but no information has leaked out in the public domain on their exchanges. (Reuters/HT Archive)
Updated on Feb 25, 2021 08:41 AM IST
Copy Link
ANI | , Islamabad

In China's debt-trap diplomacy, Pakistan is struggling to repay loans for power projects under President Xi Jinping's Belt and Road Initiative (BRI) and seeks to reschedule as much as USD 22 billion in outstanding credits.

In recent years, Chinese loans have fueled a massive buildout of Pakistan's power generation, financing that has turned a perennial electricity shortfall into a now-massive capacity surplus that the highly indebted nation can increasingly ill-afford, Asia Times reported.

Also Read: China lauds ‘iron ally’ Pak for not evacuating stranded from Wuhan

In those debt-rescheduling talks, Pakistani officials are also reportedly asking their Chinese counterparts to decelerate agreed plans to build even more power plants that would add to the overcapacity problem.

"Yes, we have accelerated efforts to get some sort of relaxation from Beijing either in the power purchase mechanism or on the mode of payment of capacity cost," Asia Times quoted the source as saying.

According to the source, a high-level delegation led by Pakistani President Arif Alvi visited Beijing last March to discuss the possibility of a 2.5 per cent cut in the present interest rate on power sector-related loans at Libor plus 4.5 per cent.

Also Read: China puts the pedal to the metal on vaccine diplomacy. There are concerns | Analysis

"[Alvi] also discussed with his Chinese counterpart a 10-year extension in the debt repayment period. These two rebates, if approved, would save [Pakistan] about USD 600 million annually," said the source.

The Pakistani government has recently re-approached Chinese officials on the issue but no information has leaked out in the public domain on their exchanges, reported Asia Times.

"First, the power purchase agreements made with Beijing provide for a highly overrated power supply, which eats up roughly USD 1.6 billion annually. Another USD 1.8 billion goes into power pilferage and line losses, and yet another USD 9 million is consumed in recovery losses of power dues from consumers," Asia Times quoted Dr Farrukh Saleem, an Islamabad-based political economist, analyst, and columnist, citing official statistics on power sector losses incurred by the state.

Saleem said that the recent COVID-influenced downturn in gross domestic product growth from 5.8 per cent in 2018 to -0.4 per cent in 2020, the first time Pakistan's economy dipped into negative growth in over seven decades, has curtailed electricity demand across the country.

"This rendered thousands of megawatt electricity surplus, on which the government pays capacity charges in line with the agreements," Saleem added.

Experts say that if the current overcapacity problem and debt repayment terms persist, the government's overall power sector liability may balloon beyond 1.5 trillion rupees (USD 9.4 billion) by the end of 2023, reported Asia Times.

Asia Times further reported that official estimates indicate that Pakistan's energy-related debts will rise to 2.8 trillion (USD 17.5 billion) rupees by the end of June under current Belt and Road terms and conditions. The figures show that power sector liabilities surged by 538 billion rupees (USD 3.4 billion) in just one year from July 2019 to June 2020.

Official figures indicate that Pakistan's total debt servicing liability could surpass USD 14 billion by the end of the year, at a time foreign exchange reserves are hovering around USD 13 billion.

That's leading some analysts to the conclusion that China's Belt and Road lending to Pakistan is becoming a "debt trap", as total external debts and liabilities hit USD 115.76 billion at the end of 2020 and more owed in 2021 for what are now seen as unproductive Chinese power sector investments, Asia Times reported.

SHARE THIS ARTICLE ON
Close Story
QUICKREADS

Less time to read?

Try Quickreads

  • The guided missile cruiser USS Port Royal sails through the Pacific Ocean on December 13, 2005. (REUTERS/FILE)

    In new Indo-Pacific move, US and allies launch Partners in the Blue Pacific initiative

    To reinforce its Indo-Pacific strategy, and in what is being seen as a response to China's aggressive outreach to Pacific Island states, the United States (US) - along with Australia, New Zealand, United Kingdom and Japan - announced a new Partners in Blue Pacific initiative on Friday. This month, China's foreign minister, Wang Yi, also undertook an eight country tour in the region and hosted a China-Pacific Island Countries Foreign Ministers Meeting in Fiji.

  • A Ukrainian tank is in position during heavy fighting on the front line in Severodonetsk, the Luhansk region, Ukraine.

    ‘Russians fully occupy Severodonetsk’: Mayor

    Russia's army has “fully occupied” the key Ukrainian city of Severodonetsk after weeks of fighting, its mayor said on Saturday, an important strategic win for Moscow as it seeks to gain full control over the east of the country. The industrial hub of Severodonetsk has been the scene of weeks of running battles, but the Ukrainian army said on Friday that its outgunned forces would withdraw to better defend the neighbouring city of Lysychansk.

  • People in the US gather to protest the Supreme Court’s decision to overturn Roe v Wade. 

    Joe Biden criticises top court for making ‘terrible decisions’

    President Joe Biden criticised the US Supreme Court for making “terrible decisions”, a day after it struck down the constitutional right to abortion. Biden commented during a signing ceremony on Saturday for gun safety bill he supports, though he continued to sidestep questions about reforms to the court sought by some Democrats. He didn't respond to other questions, such as on court or filibuster reform, before heading off to Europe for international summits.

  • A Ukrainian tank is in position during heavy fighting on the front line in Severodonetsk, the Luhansk region, Ukraine. (File photo)

    Ukraine's Severodonetsk 'fully occupied' by Russian army: Mayor

    Ukraine's Severodonetsk was "fully occupied" by the Russian army, its mayor said on Saturday, after weeks of fighting over the key eastern city. The Ukrainian army on Friday said it would withdraw its forces from the city of some 100,000 inhabitants before the war to better defend the neighbouring city of Lysychansk. Mayor Oleksandr Striuk said civilians had started to evacuate the Azot chemical plant, where several hundred people had been hiding from Russian shelling.

  •  A rescuer stands amid rubbles following the destruction of a heating system plant after a Russian missile attack in Kostyantynivka, in Donetsk region.

    'Massive' missile attack from Belarus, Russia ally not involved in war: Ukraine

    Ukraine said it came under "massive bombardment" Saturday from neighbouring Belarus, a Russian ally not officially involved in the conflict, the day after announcing a retreat from the strategic city of Severodonetsk. Belarus has provided logistic support to Moscow since the February 24 invasion, particularly in the first few weeks, and like Russia has been targeted by Western sanctions -- but is officially not involved in the conflict.

SHARE
Story Saved
×
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Sunday, June 26, 2022