World Bank representative Anthony Cholst said the bank will continue economic cooperation with Pakistan. PHOTO: REUTERS
ISLAMABAD:
Pakistan has approached the World Bank for its possible role in refinancing a $36 billion energy sector debt from multilateral and bilateral creditors that it had previously taken to install power projects.
Government sources told The Express Pakinomist that the tentative proposal has been developed with the aim of replacing the expensive foreign debt with relatively cheaper multilateral debt to reduce the end consumer price.
The cost of debt, including principal loan repayment, is part of the electricity price and is paid by consumers including dividends to the sponsors of these projects. The sources said the authorities have so far held meetings with the World Bank besides holding inter-ministerial discussions.
A World Bank spokesperson confirmed to The Express Pakinomist that in a meeting on Thursday, the power minister “mentioned about $36 billion (energy debt) and asked if development partners can jointly support it”.
Given the size of the financing, no single lender can provide the $36 billion, the sources said.
During another meeting on Thursday, various ministries expressed divergent views and it was decided that the Power Division would fine-tune the proposal in consultation with the Finance Ministry, government sources said.
According to the original proposal, the government wants to lower the debt burden in the heavy electricity sector by ensuring flexible, long-term financing. It sought a 15-year debt repayment period, including about a four-year grace period, they added.
The goal is to lower energy prices to around 8-9ยข per unit, which equates to Rs25 per unit price.
The government has recently reduced the electricity rates for the industrial consumers to around Rs23 per unit but the actual bills cost over Rs26 per unit. unit. However, residential consumers are still paying over Rs57 per unit price, which is unsustainable and has pushed them towards rooftop solar panels.
The sources said Power Minister Awais Laghari met with World Bank country manager Bolormaa Amgaabazar this week and sought the Washington-based lender’s support. When contacted, a World Bank spokesperson confirmed the development.
The spokesman said the power minister met Bolormaa the other day along with the power secretary and other officials of the Power Division.
“During the meeting, the minister mentioned their plan to restructure the heavy burden of sector debt,” the spokesperson said in response to a question. “The proposal is not yet clear to us and we have requested more information,” the Washington-based lender said on Friday.
The spokesman said the lender told the government it “can share some global experience that can help them develop a financing mechanism to restructure their debt”. According to the spokesman, no discussion about the financial support from the World Bank was discussed.
But the sources said that in case the multilateral lender club comes together to help Pakistan, they can provide $1 billion to $2 billion annually to repay the overdue debt.
Power Division answer
When contacted, a Power Division spokesperson claimed that “several reform ideas are under internal consideration to help stimulate demand and ease pressure on consumers; however, no proposal involving debt re-profiling or refinancing is under discussion”.
The spokesman added that the Power Division’s reform agenda was focused on ensuring long-term sustainability of the electricity sector and addressing new challenges, including those arising from reduced demand.
He further said that the Power Division continues to engage with various international financial institutions on green and climate-adapted financing pathways with the aim of supporting sector efficiency improvements and helping to moderate tariff pressures over time.
“We are also working closely with business and other stakeholders to address concerns related to electricity tariffs and to improve regional competitiveness within the overall political and macroeconomic framework,” he added.
Pakistan has set up most of the power plants in the last decade with the help of Chinese financial institutions. The Express Pakinomist had reported in 2018 that Pakistan would have to pay $28 billion in debt repayment to Beijing against the China-Pakistan Economic Corridor (CPEC) energy and infrastructure projects until 2038. The report was based on government data that had been shared with the International Monetary Fund (IMF) by the then Pakistan Tehreek-e-Insaf government.
The commercial loans for setting up CPEC power plants had been raised at an interest rate of London Interbank Offered (Libor) plus 4.5%. It had also been reported seven years ago that Pakistan can sustain these repayments only by increasing its exports.
In July 2024, Finance Minister Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari had met with China’s Finance Minister and the President of China Export and Credit Insurance Corp (SINOSURE) for energy debt restructuring.
Pakistani officials had proposed a year and a half ago an eight-year extension of energy debt repayments, conversion of dollar-based interest payments into Chinese currency and reduction of overall interest rates for both CPEC and non-CPEC Chinese-financed projects. These measures were aimed at lowering energy costs.
