New Delhi: Pakistan is facing an acute energy crisis-cum-financial crunch that is getting worse and is likely to deteriorate further if the China-Pakistan Economic Corridor’s (CPEC) second phase is carried out as proposed, according to an article in Asia Times.
Pakistan’s power sector circular debt stood at 1.89 trillion rupees ($6.7 billion) as of February, up nearly 200 billion rupees in just two months. Of that total, 543 billion rupees trace directly to CPEC power projects, marking an all-time high, the article points out.
The International Monetary Fund (IMF) has closely monitored Islamabad’s payments to Chinese power producers, and bluntly said that the debt poses a serious threat to economic stability. The circular debt, which requires Pakistan to pay for Chinese-built capacity on a take-or-pay basis, works like a slow drain on national coffers.
Before CPEC’s power plants came online, annual power capacity charges were around 384 billion rupees. They are now 2.1 trillion rupees because Pakistan signed contracts guaranteeing payments to Chinese independent power producers, whether the electricity was used or not. That means the country pays whether the lights are on or off, the article laments.
Three of the flagship coal plants at Sahiwal, Port Qasim and Hub burn coal shipped in from Indonesia, South Africa and Australia. So when global coal prices spike, Pakistani electricity tariffs do as well. Industries that can’t absorb those costs shut down production lines. Consumers who can’t afford the bills don’t pay. And the unpaid bills pile up, creating a debt trap from the inside, the article observes.
Islamabad has tried to negotiate a way out with Beijing. The government raised 1.23 trillion rupees and earmarked 565 billion rupees to clear overdue payments to seven Chinese coal plants and 49 renewable projects. It has asked Chinese operators to waive 170 billion rupees in late-payment charges, the same deal that domestic power producers had accepted, writing off 377 billion rupees between them.
However, the Chinese IPPs refused to do so. Their position was that any concession to Pakistan would open the door to renegotiations across the entire Belt and Road infrastructure network worldwide.
Meanwhile, the IMF objected when Pakistan tried to quietly funnel 50 billion rupees to Chinese power producers without renegotiating first. Islamabad is thus caught between two creditors pulling in opposite directions. Meanwhile, a $23.5 billion trade deficit in the first nine months of this fiscal year has left Islamabad with almost no bargaining power.
CPEC 2.0 is supposed to change the narrative. While Phase One allocated nearly 75 per cent of its energy investment to coal, the new Phase Two framework will pivot toward greener solar, wind, hydropower and storage.
The completed projects have added 9,504 megawatts to the national power grid. Meanwhile, BYD is set to assemble electric vehicles (EVs) in Pakistan by mid-2026, a sign that Chinese capital allocated to Pakistan is, at least on paper, moving beyond concrete and coal.
But the credibility of these ambitions runs into Phase One’s unlearned lessons. Pakistan sidelined the Diamer-Bhasha, Dasu and Bunji hydropower projects, which could have delivered over 15,000 megawatts of cheap, domestic energy, and opted for imported coal instead.
Nobody has explained why, at least not publicly. And two of the new Special Economic Zones under CPEC 2.0 sit in documented flood-risk areas, one in a Sindh district devastated by the 2022 floods. If the infrastructure gets washed out every few years, the returns will never arrive.
Then there is Balochistan. Since 2021, at least 20 Chinese nationals have been killed and 34 injured in attacks claimed by the Baloch Liberation Army and allied groups which will continue to pose a major risk. The BLA has made it very clear that it wants China out of Balochistan, and the CPEC shut down entirely. In January 2026, its operations killed 48 people in a single month, the report added.
(IANS)
