By June 2025, Pakistan’s unpaid dues to Chinese power producers under the China-Pakistan Economic Corridor (CPEC) reached an all-time high of PKR 423 billion, a PKR 22 billion rise from the previous year, reflecting persistent fiscal mismanagement and deepening structural failures in Pakistan’s energy and financial administration.

Since 2017, Pakistan has paid a total of PKR 5.1 trillion to 18 Chinese power plants, covering approximately 92% of billed amounts including interest. However, more than PKR 100 billion of the outstanding sum now consists primarily of late payment penalties rather than genuine energy costs. This accumulation is a direct consequence of delayed and incomplete remittances, highlighting Pakistan's chronic inability to fulfil its contractual obligations promptly, which is eroding trust with one of its most critical investors.

To manage the growing circular debt — now at PKR 2.4 trillion nationwide — the government is resorting to further borrowing, seeking PKR 1.3 trillion in new loans from domestic commercial banks to temporarily clear these dues.

Creative accounting sees these new debts being funnelled through special-purpose vehicles to keep them off Pakistan’s official public debt records, but this tactic fails to resolve core systemic flaws. Previous efforts to negotiate rescheduling, request currency conversion for interest payments, or seek interest waivers from Chinese firms have been unsuccessful, as Beijing insists Pakistan honour the original contracts in full.

The government’s attempts at ring-fencing Chinese interests by creating a revolving fund (mandated to hold 21% of invoice values) have proved ineffective due to stringent restrictions limiting withdrawals to a mere PKR 4 billion per month, leaving the payment backlog to persistently grow. As a result, the fund’s intended protective purpose for Chinese investors has been undermined.

The breakdown of specific dues includes:

PKR 87 billion owed to the Sahiwal coal plant
PKR 85.5 billion to the Port Qasim coal plant
PKR 69 billion to the Hub power project

Tens of billions owed to other projects, such as Thar coal, Engro Powergen, and the Matiari-Lahore Transmission Line.

This continued fiscal indiscipline violates the 2015 CPEC Energy Framework Agreement, which obliges Pakistan to make full payments to Chinese producers irrespective of Pakistan’s own revenue shortfalls.

The breach of this agreement, coupled with mounting security concerns, has caused a slowdown in fresh Chinese investment, despite repeated diplomatic interventions by Beijing. Pakistan’s political leadership continues to issue public appeals for new Chinese investment, but without fundamental reforms in the power and fiscal management sectors, results remain elusive.

Pakistan’s mounting CPEC dues and chronic circular debt exemplify ongoing fiscal mismanagement. Short-term solutions focused on financing through additional loans provide only temporary relief, with the core structural problems persisting unabated and bilateral investor confidence continuing to erode.

Based On A News18 Report