The World Bank has cancelled a $500 million to $600 million loan to Pakistan under the Affordable and Clean Energy (PACE-II) program, citing Islamabad’s failure to meet key conditions, including the renegotiation of the China-Pakistan Economic Corridor (CPEC) power purchase agreements.
This decision means that Pakistan will not receive any new budget support loans during the current fiscal year, which could impact the government’s expectation of securing $2 billion in fresh loans.
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Government sources indicated that the World Bank had initially agreed to provide the loan to address the external financing gap but pulled back after Pakistan failed to make sufficient progress on renegotiating contracts with Independent Power Producers (IPPs), including Chinese power plants under CPEC.
Despite attempts to renegotiate deals, particularly with Chinese power plants, China has repeatedly refused to reopen these agreements, including restructuring the energy debt of approximately $16 billion.
In addition, the government has made limited progress in reducing electricity prices, with the per-unit cost remaining high at Rs65 to Rs70, including taxes and surcharges. Efforts to remove a cross-subsidy, which could lower prices for residential users, have been resisted.
The World Bank confirmed the cancellation, citing slow progress in Pakistan’s energy sector reforms and reiterated that it will not provide new budget support for this fiscal year. However, the World Bank continues to support hydropower projects and energy distribution efficiency.
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