Pakistan’s power sector is set to remain exposed to currency fluctuations for several years as a result of dollar-indexed projects under the China-Pakistan Economic Corridor (CPEC), according to Federal Minister for Power Sardar Awais Leghari. Despite the government’s move to secure a massive Rs1.225 trillion financing arrangement with 18 commercial banks to address the growing circular debt, structural vulnerabilities tied to foreign currency financing continue to overshadow the sector.
The financing agreement, announced earlier this week, aims to retire part of the power sector’s debt burden that has ballooned over the years. While the deal provides short-term fiscal relief, Minister Leghari highlighted on Friday that the challenges linked to dollar-based tariffs and debt servicing obligations will persist for up to eight years.
He explained that independent power producers (IPPs) commissioned after 2015, with a combined generation capacity exceeding 11,000 megawatts, were financed in US dollars. Their tariffs and debt repayment schedules are locked in against the dollar, leaving Pakistan’s energy sector highly sensitive to shifts in the exchange rate.
“Dollar-linked debt will remain sensitive to exchange rate fluctuations for the next 7–8 years,” Leghari noted. He recalled that when these contracts were signed during the PML-N government, the exchange rate stood at Rs100 to a dollar. “The Rs18 per unit capacity charge today would have been Rs8–9 lower if the rate had remained unchanged,” he added.
The minister refrained from confirming whether the current government would pursue revisions to post-2015 contracts in the same way it renegotiated agreements with pre-2015 IPPs and state-owned generation plants. He did acknowledge, however, that Islamabad has approached Beijing for concessions on CPEC-related power projects, though those talks have yielded limited progress so far.
This ongoing exposure underscores the complexity of Pakistan’s energy crisis, which is not only a fiscal challenge but also a structural one rooted in contract design and foreign currency dependencies. Analysts argue that unless significant reforms are undertaken, exchange rate volatility will continue to drive up capacity charges, placing additional pressure on consumers and the national budget.
The financing deal with local banks offers temporary liquidity to the power sector by easing the circular debt, which has become a major bottleneck for the country’s energy supply chain. However, with repayments and capacity charges indexed to the dollar, future shocks in the currency market could erode much of the relief this financing is expected to provide.
Leghari’s remarks reflect a growing recognition within government circles that the country’s power sector vulnerabilities cannot be addressed through financing arrangements alone. The challenge of dollar-linked obligations demands a strategic rethink, especially as Pakistan navigates broader economic reforms under the supervision of global lenders like the International Monetary Fund.
As the government works to stabilize the sector, the coming years are likely to test its ability to balance immediate debt management with long-term structural reforms. Without significant breakthroughs in renegotiating dollar-based contracts, Pakistan’s energy sector may continue to face recurring cycles of debt and tariff hikes, keeping both the economy and consumers under pressure.
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