Published: 12:11 PM, 01 February 2025 Last Update: 12:21 PM, 01 February 2025
Beijing's Exploitative Energy Deals Leave Pakistan Powerless
China's debt trap policy is widely recognized, yet numerous nations, especially those impoverished or developing, continue to fall into its financial snares. These countries, eager to advance their economic conditions, become easy targets for China's strategic exploitation. China capitalizes fully on the vulnerabilities of these nations. Pakistan, grappling with severe power shortages, has also succumbed to China's debt trap. In its desperate need for electricity production, Pakistan welcomed China's intervention, unaware of the ulterior motives behind this seemingly benevolent assistance.
Pakistan, the only South Asian nation with chronic power shortages, suffers rampant load-shedding in major cities like Karachi. Despite a power production capacity of 42,131 MW,nearly double its electricity demand—sharp rate hikes in May 2024, to secure an IMF bailout, mean powering a home can cost more than renting one. This mismatch has sparked public criticism of Independent Power Producers (IPPs), especially Chinese IPPs under the China-Pakistan Economic Corridor (CPEC), and calls for renegotiations and reforms.
In 2014, China entered into Pakistan's energy sector via the China-Pakistan Economic Corridor (CPEC), part of China's Belt and Road Initiative (BRI). Initially valued at $48 billion and later expanded to $62 billion, CPEC was hailed as a "game changer" for Pakistan's economy. However, most investments targeted the power sector, raising concerns about China's ulterior motives and the potential for Pakistan to become entangled in debt and dependency.
Of the $62 billion, nearly $35 billion funded 21 coal-fired power projects, adding 6,000 MW to Pakistan's grid. However, these projects have ballooned national debt, with a 75% debt-to-equity ratio. Chinese IPPs reportedly enjoy exorbitant returns on equity—27-34%—guaranteed by the government, far exceeding the 1994 policy's 15-18% rate. This raises serious concerns about China's exploitative financial practices.
While CPEC projects have addressed some energy deficits, load-shedding remains rampant in cities like Karachi. Critics assert that CPEC power projects have saddled Pakistan with unsustainable debt and exorbitant electricity costs. Despite significant capacity additions, affordable power is still out of reach for households and industries. These issues underscore the detrimental impact of China's involvement in Pakistan's energy sector, raising concerns about the true benefits of CPEC's energy deals.
Pakistan's soaring energy demands facilitated China's entry into Pakistan's power sector. Signed in 2014, CPEC prioritized power generation alongside roads, rails, and business parks. While China focused on connectivity projects, Pakistan's government directed initial CPEC financing toward energy. By 2022, energy-starved Pakistan aimed to add 30,000 MW to the grid, with 11 projects providing over 6,000 MW.
Over the past two decades, Beijing has poured billions into Pakistan, creating the world's largest China-funded energy portfolio. AidData found Pakistan's debt exposure to Beijing at $67.2 billion from 2000-2021. CPEC has added nearly $26 billion to Pakistan's government debt. These investments, primarily loans, have led to a balance of payments crisis, highlighting China's exploitative financial practices and the severe economic strain on Pakistan.
Critical of CPEC from the start, the then Pakistan government sought a bailout from Beijing amid shrinking FDI. China's refusal forced Pakistan to turn to the IMF, securing a $6 billion bailout. This highlights China's sinister motives, exploiting Pakistan's financial struggles while refusing genuine assistance.
Amid debates on CPEC and Pakistan's finances, IPPs have become a contentious issue. The IPP debate isn't new, but criticism escalated as energy prices soared. Last year, former caretaker minister called to scrap IPP contracts, blaming them for Pakistan's exorbitant electricity prices.
The contracts with IPPs, including capacity payments and guaranteed returns, exacerbate Pakistan's circular debt. A few ministers highlighted that capacity payments—fixed payments to power producers, regardless of electricity usage—cost Pakistan 150 billion rupees ($540 million) monthly. Some plants, like Sahiwal and Port Qasim, inflated setup costs, exploiting Power Purchase Agreements (PPAs) that allow self-invoicing. These capacity payments represent Pakistan's third-largest debt obligation, after defence and foreign debt, underscoring China's exploitative financial practices.
In an interview with Voice of America, Pakistan’s power minister, acknowledged the need to revise contracts with Chinese power producers. Before CPEC projects, Pakistan paid 384 billion rupees in capacity payments to IPPs in 2015. After CPEC IPPs, this bill soared to 2124 billion rupees annually. Today, Pakistan pays more to the Sahiwal coal power plant—jointly owned by two Chinese state-owned companies—than to all IPPs combined in 2002.
The energy policies and CPEC power projects did lead to overcapacity in Pakistan's power generation. The mounting debt, particularly from China, has forced Pakistan to purchase electricity at high tariffs, despite having a surplus. Islamabad's repeated pleas in 2024 to restructure its $15 billion energy debt have been ignored by Beijing, highlighting China's exploitative financial practices and lack of genuine support.
Written by: Md. Sajib Biswas (Journalist) [The views and opinions expressed in this article are those of the author’s personal.]
Pakistan, the only South Asian nation with chronic power shortages, suffers rampant load-shedding in major cities like Karachi. Despite a power production capacity of 42,131 MW,nearly double its electricity demand—sharp rate hikes in May 2024, to secure an IMF bailout, mean powering a home can cost more than renting one. This mismatch has sparked public criticism of Independent Power Producers (IPPs), especially Chinese IPPs under the China-Pakistan Economic Corridor (CPEC), and calls for renegotiations and reforms.
In 2014, China entered into Pakistan's energy sector via the China-Pakistan Economic Corridor (CPEC), part of China's Belt and Road Initiative (BRI). Initially valued at $48 billion and later expanded to $62 billion, CPEC was hailed as a "game changer" for Pakistan's economy. However, most investments targeted the power sector, raising concerns about China's ulterior motives and the potential for Pakistan to become entangled in debt and dependency.
Of the $62 billion, nearly $35 billion funded 21 coal-fired power projects, adding 6,000 MW to Pakistan's grid. However, these projects have ballooned national debt, with a 75% debt-to-equity ratio. Chinese IPPs reportedly enjoy exorbitant returns on equity—27-34%—guaranteed by the government, far exceeding the 1994 policy's 15-18% rate. This raises serious concerns about China's exploitative financial practices.
While CPEC projects have addressed some energy deficits, load-shedding remains rampant in cities like Karachi. Critics assert that CPEC power projects have saddled Pakistan with unsustainable debt and exorbitant electricity costs. Despite significant capacity additions, affordable power is still out of reach for households and industries. These issues underscore the detrimental impact of China's involvement in Pakistan's energy sector, raising concerns about the true benefits of CPEC's energy deals.
Pakistan's soaring energy demands facilitated China's entry into Pakistan's power sector. Signed in 2014, CPEC prioritized power generation alongside roads, rails, and business parks. While China focused on connectivity projects, Pakistan's government directed initial CPEC financing toward energy. By 2022, energy-starved Pakistan aimed to add 30,000 MW to the grid, with 11 projects providing over 6,000 MW.
Over the past two decades, Beijing has poured billions into Pakistan, creating the world's largest China-funded energy portfolio. AidData found Pakistan's debt exposure to Beijing at $67.2 billion from 2000-2021. CPEC has added nearly $26 billion to Pakistan's government debt. These investments, primarily loans, have led to a balance of payments crisis, highlighting China's exploitative financial practices and the severe economic strain on Pakistan.
Critical of CPEC from the start, the then Pakistan government sought a bailout from Beijing amid shrinking FDI. China's refusal forced Pakistan to turn to the IMF, securing a $6 billion bailout. This highlights China's sinister motives, exploiting Pakistan's financial struggles while refusing genuine assistance.
Amid debates on CPEC and Pakistan's finances, IPPs have become a contentious issue. The IPP debate isn't new, but criticism escalated as energy prices soared. Last year, former caretaker minister called to scrap IPP contracts, blaming them for Pakistan's exorbitant electricity prices.
The contracts with IPPs, including capacity payments and guaranteed returns, exacerbate Pakistan's circular debt. A few ministers highlighted that capacity payments—fixed payments to power producers, regardless of electricity usage—cost Pakistan 150 billion rupees ($540 million) monthly. Some plants, like Sahiwal and Port Qasim, inflated setup costs, exploiting Power Purchase Agreements (PPAs) that allow self-invoicing. These capacity payments represent Pakistan's third-largest debt obligation, after defence and foreign debt, underscoring China's exploitative financial practices.
In an interview with Voice of America, Pakistan’s power minister, acknowledged the need to revise contracts with Chinese power producers. Before CPEC projects, Pakistan paid 384 billion rupees in capacity payments to IPPs in 2015. After CPEC IPPs, this bill soared to 2124 billion rupees annually. Today, Pakistan pays more to the Sahiwal coal power plant—jointly owned by two Chinese state-owned companies—than to all IPPs combined in 2002.
The energy policies and CPEC power projects did lead to overcapacity in Pakistan's power generation. The mounting debt, particularly from China, has forced Pakistan to purchase electricity at high tariffs, despite having a surplus. Islamabad's repeated pleas in 2024 to restructure its $15 billion energy debt have been ignored by Beijing, highlighting China's exploitative financial practices and lack of genuine support.
Written by: Md. Sajib Biswas (Journalist) [The views and opinions expressed in this article are those of the author’s personal.]
