World Bank representative Anthony Cholst said the Bank would continue its economic cooperation with Pakistan. PHOTO: REUTERS
ISLAMABAD:
Pakistan has approached the World Bank for its possible role in refinancing energy sector debt worth $36 billion from multilateral and bilateral creditors, which it had incurred in the past to install power projects.
The government sources told The Express PK Press Club that the preliminary proposal was drawn up with the aim of replacing costly foreign debt with relatively cheaper multilateral debt to reduce the final consumer price.
The cost of debt, including repayment of principal on loans, is part of the price of electricity and is paid by consumers, including dividends paid to the developers of these projects. The sources said authorities have so far held meetings with the World Bank in addition to inter-ministerial discussions.
A World Bank spokesperson confirmed to The Express PK Press Club that in a meeting held on Thursday, the “energy minister raised the $36 billion (energy debt) and asked if development partners could together support it.”
Given the scale of the financing, no single lender can provide the $36 billion, the sources said.
In another meeting on Thursday, different ministries expressed divergent views and it was decided that the Energy Division would refine the proposal in consultation with the Ministry of Economy, government sources said.
According to the initial proposal, the government wants to alleviate the heavy debt burden of the power sector, by guaranteeing long-term concessional financing. It requested a debt repayment period of 15 years, including approximately a four-year grace period, they added.
The aim is to reduce power prices to around 8-9¢ per unit, which translates to a unit price of Rs 25.
The government recently reduced electricity prices for industrial consumers to around Rs 23 per unit, but the actual cost of the bills was over Rs 26 per unit. However, residential consumers are still paying more than Rs57 per unit, which is unsustainable and has pushed them towards rooftop solar panels.
The sources said Energy Minister Awais Laghari met World Bank country head Bolormaa Amgaabazar this week and sought support from the Washington-based lender. Contacted, a spokesperson for the World Bank confirmed this development.
The spokesperson said that the Minister of Power met Bolormaa the other day with the Secretary of Power and other officials of the Power Division.
“During the meeting, the minister discussed his plan to restructure the sector’s heavy debt burden,” 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 Friday.
The spokesperson said the lender has told the government it “can share some global experiences that can help them develop a financing mechanism to restructure their debt.” No discussion on financial support from the World Bank was discussed, according to the spokesperson.
But the sources said if the club of multilateral lenders came together to help Pakistan, they could provide between $1 billion and $2 billion a year to repay maturing debts.
Response from the Power division
When contacted, a spokesperson for the Power division said that “several reform ideas are being studied internally to help stimulate demand and ease pressure on consumers; however, no proposals involving debt reprofiling or refinancing are under discussion.”
The spokesperson added that the Power Division’s reform agenda was focused on ensuring the long-term sustainability of the power sector and addressing emerging challenges, including those arising from declining demand.
He further said that the Power Division continues to collaborate with various international financial institutions on green and climate-aligned financing avenues, with the aim of supporting sector efficiency improvements and helping to moderate tariff pressures over time.
“We are also working closely with the business community and other stakeholders to address concerns related to electricity tariffs and improve regional competitiveness, within the overall policy and macroeconomic framework,” he added.
Pakistan has built most of the power plants over the past decade with the help of Chinese financial institutions. The Express PK Press Club had reported in 2018 that Pakistan would have to repay $28 billion of its debt to Beijing under the China-Pakistan Economic Corridor (CPEC) energy and infrastructure projects until 2038. The report was based on government data that was shared with the International Monetary Fund (IMF) by the then Pakistan Tehreek-e-Insaf government.
The commercial loans for the establishment of CPEC power plants were taken at the London Interbank Offered (Libor) interest rate plus 4.5%. It was also reported seven years ago that Pakistan could only sustain these repayments by increasing its exports.
In July 2024, Finance Minister Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari had met with Chinese Finance Minister and Chairman of China Export and Credit Insurance Corp (SINOSURE) to restructure energy debt.
Pakistani authorities had proposed an eight-year extension for energy debt repayment, conversion of dollar interest payments to Chinese currency and reduction in overall interest rates for China-funded projects, both for CPEC and non-CPEC projects, a year and a half ago. These measures were aimed at reducing energy costs.
