Reducing Capacity Payments.

Reports have emerged that following the IMF's review, Pakistan has assured the international lender that it will strive to reduce capacity payments to CPEC power projects either by renegotiating deals or having loans rescheduled. Apparently, a written assurance has been given in the Memorandum for Economic and Financial Policies (MEFP), which the IMF released on Friday as part of its combined staff level report of the 7th and 8th reviews of the Extended Fund Facility (EFF) programme.

The IMF has a history of opposing CPEC projects and the new report maintains that the second-phase of the CPEC investment could pose a risk to debt sustainability in Pakistan. Though the infrastructure in these second-phase investments could raise growth prospects, the IMF argues that attendant contingent liabilities also pose a risk to debt sustainability. Sources reveal that Pakistan owes over Rs260 billion to Chinese Independent Power Producers (IPPs) and that the IMF had linked this repayment with the condition to renegotiate CPEC deals. However, reopening these deals will not sit well with Beijing and Islamabad will have to delicately handle this situation.

Thus far, 11 Chinese IPPs, set up with an investment of $10.2 billion, are operational, having a total generation capacity of 5,320 MW. There are differing assessments on the...

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