• Source:JND
HighLights
  1. Chinese firm exits bid for Pakistan's FESCO.
  2. Signals China's cautious investment in power sector.
  3. Pakistan owes billions to Chinese power producers.

A subsidiary of China’s state-owned PowerChina has dropped out of the process to acquire a major Pakistani electricity distributor. The move has sparked discussion among analysts who have suggested that China may be slowing down its new investment in Pakistan or investing cautiously especially in the country’s troubled power sector.

Chinese Company Exits FESCO Race

According to local media reports, the company, Jiang Xi Electric Power Construction, was among 12 investors that initially showed interest in acquiring 51 per cent to 100 per cent of Faisalabad Electric Supply Company (FESCO). This also included management control. However, the company did not qualify for the next stage. Pakistani media reports noted its bid documents were submitted in Mandarin instead of following the required documentation rules.

Why Is It Concerning?

The development comes as Pakistan is trying to attract foreign investors to its loss-making electricity distribution companies, known as DISCOs. As China has been Islamabad’s biggest economic partner under the Belt and Road Initiative (BRI) and China-Pakistan Economic Corridor (CPEC), it was considered that Beijing would acquire it.

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The initiative is significant for Pakistan which aims to privatise three major power distribution companies, including the Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO), and Islamabad Electric Supply Company (IESCO) as part of its energy reforms. Islamabad hopes that private investment will help improve electricity collection, reduce losses, and ease the financial pressure on the government.

However, the case is not the same for foreign foreign investors as Pakistan's DISCOs carry major risks. These include electricity theft, high line losses, poor bill collection, and the wider problem of unpaid debts in the power sector. As a result, the latest episode is seen as a sign that Beijing’s interest in Pakistan's power sector is declining.

Pakistan Owes Billions To Chinese Power Companies

Pakistan reportedly owes around USD 2.3 billion to Chinese power producers, and this unpaid electricity debt is considered a major reason behind China’s losing interest in the acquisition. Earlier there were reports that Islamabad asked China to waive billions of dollars in late-payment surcharges connected to 18 CPEC power plants and to also relax some of contract terms. Chinese power companies, however, rejected these requests.

Chinese Companies Facing Difficulties In Extracting Profits

Analysts also suggest that Chinese companies are also facing difficulties in repatriating profits because of Pakistan's restrictions on dollars and its foreign-exchange shortage. Kyunghoon Kim, Head of the India and South Asia Team at the Korea Institute for International Economic Policy (KIEP), also highlighted the investors’ sentiments.

According to Kim, China's project lending to Pakistan has fallen dramatically. He said it is now around one-twentieth of its 2017-18 level, suggesting that China is reconsidering some of its Belt and Road projects in Pakistan. "Sure, China’s project lending to Pakistan has plummeted over the years - it is now just 1/20 of its 2017/18 level. This suggests China is rethinking its Belt and Road projects in Pakistan. But this is FLOW, not STOCK," he wrote on X.

However, this does not mean Beijing’s complete withdrawal from Pakistan as Chinese companies continue to be involved in projects across Pakistan's energy and infrastructure sectors.

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