Pakistan’s CPEC Arrears Surge to PKR 423 Billion Amid Debt Crisis and Energy Sector Mismanagement

ISLAMABAD — Pakistan’s financial crisis deepened further as outstanding payments to Chinese power producers under the China-Pakistan Economic Corridor (CPEC) soared to PKR 423 billion by June 2025. Despite repeated commitments and agreements, the government has once again failed to meet its contractual obligations, exposing persistent mismanagement in the country’s energy and fiscal systems.

According to the local newspaper, the latest arrears mark an increase of PKR 22 billion from the previous year. Since 2017, Pakistan has paid approximately PKR 5.1 trillion to 18 Chinese power companies operating under CPEC. However, officials admit that a significant portion—over PKR 100 billion—of the current dues consist of late payment penalties rather than actual energy costs. This not only reflects delayed payments but also suggests systemic inefficiencies that are damaging Pakistan’s credibility with one of its most crucial foreign investors.

Instead of implementing structural reforms to resolve the crisis, the Pakistani government has opted for short-term fixes. It is currently seeking an additional PKR 1.3 trillion loan from commercial banks to temporarily manage the ballooning circular debt. Critics argue this strategy merely defers the crisis while worsening Pakistan’s debt burden. A proposed plan to offer Chinese firms interest waivers in exchange for early settlements has also drawn skepticism, especially since Beijing has consistently demanded full compliance with contractual agreements.

Under the 2015 CPEC Energy Framework Agreement, Pakistan is obligated to pay power producers in full—regardless of revenue shortfalls. The failure to adhere to this provision constitutes a direct violation and has further strained relations with Chinese stakeholders. This, coupled with increasing security concerns for Chinese personnel and assets in Pakistan, has led to a notable slowdown in new Chinese investments.

To protect the interests of Chinese firms, Pakistan established a revolving fund in late 2022, which was supposed to maintain at least 21% of the invoice value. However, the government has imposed a strict cap on monthly disbursements—limiting withdrawals to just PKR 4 billion. This has rendered the mechanism ineffective, contributing to an ever-growing backlog of unpaid invoices.

A closer look at the arrears reveals the depth of the problem:

• Sahiwal Coal Plant is owed PKR 87 billion
• Hub Power Project is owed PKR 69 billion
• Port Qasim Plant is owed PKR 85.5 billion
• Several other projects are also awaiting payments of over PKR 1 billion each

Despite repeated diplomatic nudges from Beijing, Islamabad continues to drag its feet, opting instead to rely on further loans rather than address the root causes of the crisis—poor financial planning, mismanagement in the power sector, and lack of transparency in energy billing and collection.

The government recently struck a new deal with local commercial banks to raise PKR 1.25 trillion at slightly reduced interest rates. Officials claim this borrowing won’t be reflected in public debt figures, a form of creative accounting that fails to offer any real long-term solution. Meanwhile, attempts to renegotiate payment terms or convert interest liabilities into Chinese yuan have also stalled. Chinese authorities remain unconvinced, and Pakistan’s repeated appeals for leniency or revised terms have so far yielded no results.

The mounting CPEC-related arrears signal more than just financial strain—they represent a broader governance failure. With investor confidence waning and no clear roadmap to reform the energy sector, Pakistan’s economic vulnerabilities are likely to worsen in the coming months unless urgent structural changes are made.