World Bank representative Anthony Cholst said the Bank will continue economic cooperation with Pakistan. PHOTO: REUTERS
ISLAMABAD:
Pakistan has approached the World Bank over its possible role in refinancing energy sector debt worth $36 billion from multilateral and bilateral creditors, which it had taken in the past to set up power projects.
Government sources told The Express PAkGazette that the draft proposal was developed with the aim of replacing expensive external debt with relatively cheaper multilateral debt to reduce the price to the end consumer.
The cost of debt, including repayment of principal on loans, is part of the price of electricity and is paid by consumers, including dividends to the sponsors of these projects. 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 PAkGazette that in a meeting on Thursday the Energy Minister “discussed the $36 billion (energy debt) and asked if development partners together can support it.”
Given the magnitude of the financing, no single lender can provide the $36 billion, the sources said.
During another meeting on Thursday, different ministries expressed divergent views and it was decided that the Power Division would refine the proposal in consultation with the Ministry of Economic Affairs, government sources said.
According to the initial proposal, the government wants to reduce the heavy debt burden of the electricity sector, ensuring concessional and long-term financing. They added that it was seeking a debt repayment period of 15 years, including a grace period of around four years.
The aim is to reduce power prices to around ยข8-9 per unit, which translates to Rs 25 per unit price.
The government has recently reduced electricity prices for industrial consumers to around Rs 23 per unit, but the actual cost of the bills is more than Rs 26 per unit. However, residential consumers continue to pay more than Rs 57 per unit price, which is unsustainable and has pushed them to opt for rooftop solar panels.
Sources said Energy Minister Awais Laghari met World Bank chief Bolormaa Amgaabazar this week and sought support from the Washington-based lender. When contacted, a World Bank spokesperson confirmed the fact.
The spokesperson said the Minister of Energy met with Bolormaa the other day, along with the Secretary of Energy and other officials of the Energy Division.
“During the meeting, the minister mentioned his plan to restructure the sector’s heavy debt burden,” the spokesperson said, responding 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 told the government it “can share some global experiences that can help them develop a financing mechanism to restructure their debt.” According to the spokesperson, financial support from the World Bank was not discussed.
But sources said that in case the club of multilateral lenders comes together to help Pakistan, they could provide between $1 billion and $2 billion annually to pay off maturing debts.
Energy Division Response
When contacted, a spokesperson for the Energy Division said: “Multiple reform ideas are being considered internally to help stimulate demand and ease pressures on consumers; however, no proposals involving a new debt profile or refinancing are being discussed.”
The spokesperson added that the Energy Division’s reform agenda focused on ensuring the long-term sustainability of the power sector and addressing emerging challenges, including those arising from demand reduction.
He further said that the Energy Division continues to collaborate with various international financial institutions on green and climate-aligned financing, 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 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 PAkGazette had reported in 2018 that Pakistan would have to make debt payments of $28 billion 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.
Commercial loans for setting up CPEC power plants were granted at the London Interbank Offered Rate (Libor) plus 4.5%. It was also reported seven years ago that Pakistan can only sustain these repayments by increasing its exports.
In July 2024, Finance Minister Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari met with China’s Finance Minister and the Chairman of China Export and Credit Insurance Corporation (SINOSURE) to restructure energy debt.
Pakistani officials had proposed a year and a half ago an eight-year extension to repay energy debt, convert dollar interest payments into Chinese currency and reduce overall interest rates for both CPEC and non-CPEC Chinese-financed projects. These measures were aimed at reducing energy costs.
