“Chinese IPPs’ Circular Debt Surpasses Rs400 Billion, Posing Challenge to Power Sector Projects

The government may explore requesting the use of domestic coal to reduce power generation costs.

The circular debt owed by Independent Power Producers (IPPs) of Chinese companies has surpassed Rs400 billion, creating difficulties for ongoing and future power sector projects. The overall circular debt for the power sector reached Rs2.6 trillion by the end of October 2023, with a monthly increase of Rs75 billion.

Sources indicate that the escalating debt, particularly for Chinese IPPs, poses a threat to the progress of power projects. Despite previous payments reducing the burden, the debt has surged again, raising concerns among Chinese stakeholders.

Officials report that discussions with the Chinese side involve requests to extend the maturity of the debt-to-equity ratio on Chinese IPP projects. However, challenges arise due to the nature of Chinese power plants relying on imported coal and RLNG, causing capacity repayment issues and burdening customers.

The government may explore requesting the use of domestic coal to reduce power generation costs. Repayments to Chinese IPPs are linked to the dollar rate, and the depreciation of the rupee against the dollar complicates repayment in local currency.

As of October 30, 2023, the circular debt reached Rs2.6 trillion, climbing from Rs2.3 trillion at the end of June 2023. Revised estimates shared with the IMF indicate a further increase of Rs385 billion by the end of December.

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The power sector faces challenges, with Rs1.75 trillion payable to power producers and power distribution companies incurring losses of Rs76 billion in the first four months of the current fiscal year. Despite tariff adjustments and surcharges, the sector remains in turmoil, with no immediate relief in sight.”