In response to Prime Minister Shehbaz Sharif’s admission that the unpaid balances of Chinese power plants had risen to Rs450 billion, the government has approved Rs103 billion in extra subsidies to help decrease the spiralling circular debt in the power industry.
The subsidy was provided by the Ministry of Finance to resolve the claims made by K-Electric (KE) and Azad Jammu and Kashmir. According to government officials, the Rs103 billion unbudgeted subsidy is the first installment of an additional Rs335 billion in electricity subsidies that Islamabad committed to pay under a February agreement with the International Monetary Fund (IMF).
The PM stated that “the unpaid dues of the Chinese power plants had escalated to Rs450 billion” at the same time that the Power Division was working to resolve further subsidy claims. Despite his government having paid Chinese producers Rs150 billion over the last year, PM Sharif claimed that the debt to China had grown to Rs450 billion.
Due to the weak performance of the power industry and a lack of foreign money, Pakistan has been unable to pay the cost of energy on time, in violation of its obligations under the different agreements inked with the Chinese power producers. Chinese power plants are currently exercising restraint by choosing not to use dispute resolution procedures while being severely short on the raw materials needed to operate the facilities, which are mostly coal.
Due to lower planned subsidies, larger line losses, poor bill collection, and inefficiency of the public sector, the power industry is in financial collapse, which is highlighted by the enormous overdue dues on account of power purchases.
According to a representative of the finance ministry, the money will be given to the Central Power Purchase Agency-Guaranteed (CPPAG), which will also make payments with the IPPs. The funds were provided as an advance subsidy, and they would be deducted from the claims the energy ministry has made for the current fiscal year.