News Desk
China’s debt-driven investment strategy continues to ensnare developing nations, and Pakistan is a case in point. The South Asian country, struggling with chronic energy shortages and a precarious economic position, turned to China for a solution. What it received was a web of high-cost infrastructure projects under the China-Pakistan Economic Corridor (CPEC), leading to unsustainable debt and soaring electricity prices.
Pakistan, with an installed power generation capacity of 42,131 megawatts—nearly double its peak demand—remains mired in energy shortfalls and nationwide blackouts. Despite the capacity surplus, sharp electricity tariff hikes in May 2024, aimed at securing an International Monetary Fund (IMF) bailout, have made energy unaffordable. Independent Power Producers (IPPs), particularly Chinese-owned entities under CPEC, are under growing scrutiny for their exorbitant financial terms.
CPEC, a flagship of China’s Belt and Road Initiative (BRI), was initially valued at $48 billion in 2014, later ballooning to $62 billion. While touted as a transformative economic project, nearly $35 billion was funneled into Pakistan’s power sector, primarily into coal-fired plants. These projects added 6,000 MW to the grid but at a steep financial cost. With a debt-to-equity ratio of 75%, these power projects carry guaranteed returns of 27-34% for Chinese investors—far above the 15-18% benchmark of Pakistan’s 1994 energy policy.
Despite these investments, Pakistan’s power crisis persists. Chinese-financed plants have locked Islamabad into long-term capacity payments, forcing it to pay billions for unused electricity. Fixed capacity payments now account for Pakistan’s third-largest financial obligation after defense and external debt. The Sahiwal and Port Qasim coal power plants, co-owned by Chinese state-owned enterprises, have been accused of inflating setup costs, leveraging Power Purchase Agreements (PPAs) that allow self-invoicing and unchecked invoicing practices.
Between 2000 and 2021, Beijing’s lending to Pakistan surged to $67.2 billion, according to AidData. CPEC alone contributed $26 billion to the country’s growing debt burden. The resulting balance-of-payments crisis left Islamabad in a financial bind, forcing it to seek an IMF bailout after China declined to restructure loans. The IMF’s $6 billion assistance package came with strict fiscal conditions, exacerbating economic hardship for ordinary Pakistanis.
The debate over IPP contracts has become increasingly contentious. A former caretaker minister called for their cancellation, blaming them for unsustainable energy costs. Pakistan’s energy minister recently admitted the necessity of renegotiating agreements with Chinese IPPs, as the country’s annual capacity payment bill surged from 384 billion rupees in 2015 to over 2.1 trillion rupees by 2024.
Meanwhile, Pakistan’s repeated appeals to China for debt restructuring—totaling $15 billion in energy-related obligations—have largely been ignored. As Pakistan grapples with rising inflation, economic stagnation, and mounting external debt, CPEC’s promise of prosperity appears to have left the country more financially vulnerable than ever. The episode underscores China’s economic leverage over Pakistan and highlights the pitfalls of Beijing’s infrastructure-driven diplomacy, which often leaves recipient countries locked in costly, unsustainable financial commitments.
