The CPEC Power Contracts: Terms, Costs, and Why They Are Worse Than 1994
Twenty-one Chinese state-owned plants, 6,000 megawatts, returns of 27 to 34 percent in dollars, and contracts that cannot be renegotiated. The CPEC story explained.
By Asad Baig · Lahore · April 2026 · Approx. 9-min read
Why CPEC is the deepest part of the trap
If the 1994 contracts created the original wound, the CPEC contracts of 2014 to 2018 inflicted a deeper one. They made the entire system harder to fix. They locked Pakistan into terms that no future government can easily reopen, regardless of political will.
This article explains what was agreed under CPEC, on what terms, with what consequences, and why even the most aggressive Pakistani government will struggle to renegotiate these contracts without triggering a diplomatic crisis.
If you want the broader timeline, see my pillar on the electricity crisis. If you want the moral case, see my position on the IPP system. This post focuses specifically on CPEC.
What was agreed under CPEC
Between 2014 and 2018, under the third Nawaz Sharif government, Pakistan signed contracts with Chinese state-owned enterprises for approximately twenty-one new power plants. Combined capacity: about 6,000 megawatts. Combined contract value, including financing: around $35 billion.
These were the China-Pakistan Economic Corridor power plants. Sahiwal coal. Port Qasim coal. Shanghai Electric Thar coal. China Hub coal. Karot Hydropower. Several more.
The headline list of CPEC power projects includes:
| Plant | Capacity | Fuel | Sponsor |
|---|---|---|---|
| Sahiwal Coal Power | 1,320 MW | Imported coal | Huaneng Shandong Ruyi |
| Port Qasim Coal Power | 1,320 MW | Imported coal | Sinohydro / AMI |
| China Hub Coal Power (CHASNUPP) | 1,320 MW | Imported coal | China Power International |
| Engro Thar Coal | 660 MW | Thar coal | China Machinery Engineering |
| Shanghai Electric Thar | 1,320 MW | Thar coal | Shanghai Electric |
| Karot Hydropower | 720 MW | Hydro | China Three Gorges |
| Suki Kinari Hydropower | 884 MW | Hydro | China Gezhouba |
| Quaid-e-Azam Solar | 1,000 MW | Solar | TBEA Xinjiang |
| Three Gorges First Wind | 49.5 MW | Wind | Three Gorges |
| Several others | Various | Various | Various Chinese SOEs |
The financing for these plants came primarily from Chinese state banks. The owners were predominantly Chinese state-owned enterprises. The construction was done predominantly by Chinese state-owned construction companies.
For Pakistan, this represented a single concentrated bet on Chinese state capacity to deliver power generation infrastructure on a scale and timeline that Western financiers had become unwilling to provide.
The terms
The terms agreed by the Pakistani government, primarily under the third Nawaz Sharif administration, were as follows:
| Provision | CPEC IPP terms |
|---|---|
| Return on equity | 27-34% guaranteed in US dollars |
| Currency risk | Borne entirely by Pakistan |
| Take-or-pay | Yes |
| Contract duration | 30 years |
| Sovereign guarantee | Yes, Pakistani state directly liable |
| Capital cost verification | Limited transparency due to bilateral framework |
| Renegotiation clauses | Subject to bilateral state-level discussions |
Compare these terms to the 1994 Power Policy, already considered overly generous to investors. The CPEC terms were significantly worse. The Return on Equity of 27 to 34 percent was, by international comparison, extraordinary for a sovereign-guaranteed thermal power project. Some Chinese plants achieved internal rates of return over 30 percent on financing that came mostly from Chinese state banks. The Pakistani consumer pays the difference.
THE TERMS COMPARED
1994 IPPs: 15-18% return on equity, in dollars. Already considered too generous.
CPEC IPPs: 27-34% return on equity, in dollars. Almost double. Some Chinese plants achieved internal rates of return over 30%, on plants whose financing came mostly from Chinese state banks.
Why Pakistan agreed
The honest answer involves several factors.
Pakistan in 2014 was suffering from intense load shedding, sixteen to twenty hours a day in summer. The economy was barely growing. Western financiers had become reluctant to fund coal projects. The World Bank had policy restrictions on coal lending. The Asian Development Bank was slow to approve and required environmental conditions Pakistan was not equipped to satisfy.
China offered something nobody else offered. Money. Speed. No environmental conditions. No human rights conditions. No anti-corruption conditions. The plants would be built in three years, not seven. The electricity would flow.
In exchange, Pakistan agreed to terms that locked Chinese state-owned companies into thirty years at returns the rest of the world considered extraordinary.
This was not a secret negotiation in the sense that the contracts were never written. It was a closed negotiation in the sense that the specific financial terms were never disclosed publicly. Parliament was given summaries. Citizens were told CPEC was a "game changer." They were not told that game change involved 27 to 34 percent dollar returns to Chinese state-owned enterprises for thirty years.
I have written about the broader pattern of secret contracts in my pillar on the electricity crisis.
The Sahiwal and Port Qasim findings
The 2020 Power Sector Inquiry Report contained specific findings about Chinese CPEC plants that have rarely been publicly discussed. The committee documented:
Sahiwal: Excess setup costs of Rs. 32.46 billion at the Sahiwal plant due to misrepresentation by sponsors regarding interest deduction periods. The interest charges on construction financing had been calculated for forty-eight months, when the plant was actually completed in twenty-seven to twenty-nine months. The difference, multiplied by the cost-plus tariff structure, generated excess Return on Equity of approximately $27.4 million per year for the thirty-year project life.
Port Qasim: Similar pattern of misrepresentation regarding construction timelines and interest accrual.
Combined excess: The 2020 inquiry estimated combined excess payments to Sahiwal and Port Qasim alone at $2.5 to $2.6 billion over the contract life.
These findings were the most damaging single category in the entire 2020 report. They concerned not Pakistani citizens defrauding their own country, but a foreign state-owned enterprise allegedly inflating capital costs to extract additional returns. The implications extended beyond Pakistan. Every other country in China's Belt and Road Initiative had reason to be concerned about similar patterns.
The 2020 report's findings on Sahiwal and Port Qasim were the report whose suppression mattered most to the Chinese government. Not because it documented Pakistani corruption, but because it documented Chinese conduct. I have written about how the report was buried at The 2020 Inquiry Report That Was Buried.
Why CPEC contracts cannot be reopened
CPEC is the trap that cannot be opened. Even if a future Pakistani government wanted to renegotiate or terminate these contracts, the legal, financial, and diplomatic consequences would be catastrophic.
China is not a private investor. China is a state. Pakistani actions against Chinese state-owned enterprises in CPEC are, in substance, actions against the Chinese state. There is no separation between the commercial and the diplomatic dimensions of these contracts.
China holds billions of dollars of Pakistani sovereign debt. Beyond the CPEC IPP financing, China is one of Pakistan's largest bilateral creditors. Confronting Chinese commercial interests creates immediate exposure on the broader debt portfolio.
China provides political support to Pakistan at the United Nations, the Financial Action Task Force (FATF), and other international forums. Confronting Chinese state-owned enterprises means putting that political support at risk.
Pakistan currently owes Chinese CPEC IPPs approximately $2 billion in unpaid arrears that keeps growing. A restructured deal where Pakistan actually pays at lower rates is, from China's perspective, better than a continuing default at higher rates. China also has a Belt and Road reputation problem, every other developing country is watching how China treats Pakistan. Chinese pressure can be exerted through legitimate diplomatic channels, with patient strategic engagement.
The CPEC contracts run until approximately 2040 to 2045. Until then, Pakistani consumers will continue paying. Whether the plants run or not.
What renegotiation would actually require
Renegotiation of CPEC IPPs would require five conditions to be present simultaneously.
Prime Minister-level engagement, not technical negotiations. The Foreign Office can prepare the ground. The Power Division can do the technical work. But the actual decision to renegotiate must be made between heads of state. Anything less will be deflected.
A specific Pakistani offer, not just a request for relief. Pakistan needs to come to the table with concrete proposals: lower returns in exchange for longer payment terms, currency conversion to rupees in exchange for partial sovereign guarantee extension, accelerated payment of certain plants in exchange for early termination of others. Without specific offers, Chinese counterparts will treat the request as performance-art politics rather than serious diplomacy.
Acceptance of short-term diplomatic friction. Renegotiation will create unease in the broader Pakistan-China relationship for some period of months. Pakistani leadership must be willing to absorb that friction without backing down. No previous Pakistani leader has demonstrated this willingness.
Domestic political coverage. Renegotiation cannot succeed if domestic opposition characterises it as anti-China sentiment or threats to national interest. The Prime Minister needs broad parliamentary buy-in, ideally including the political opposition, framing it as constitutional duty to Pakistani consumers rather than confrontation with a friendly partner.
Acceptance of partial outcomes. Pakistan will not get everything it wants. A successful renegotiation might reduce CPEC IPP returns from 27-34% to 18-22% over the remaining contract life, with currency conversion on a partial basis. This would produce significant savings, perhaps $5-8 billion in present value, while preserving the underlying CPEC framework.
This is achievable. It has not been attempted. The current Pakistani government has, since taking office in 2022, conducted partial renegotiations of domestic IPPs only. None of the renegotiated plants have been Chinese.
What you should take away
Three things to remember about CPEC.
The terms were significantly worse than 1994. A 27-34% dollar-indexed return on equity is, by international comparison, extraordinary. Pakistani consumers will be paying for these terms for another fifteen to twenty years.
The 2020 report's most damaging findings concerned CPEC plants. Excess capital costs of $2.5-2.6 billion at Sahiwal and Port Qasim alone, due to alleged misrepresentation of construction timelines. These findings were the central reason for the report's suppression.
Renegotiation is possible but requires sustained head-of-state engagement. It has not been attempted by any Pakistani government to date. The current government has restricted its renegotiation efforts to domestic IPPs. CPEC remains untouched.
CPEC is the most consequential single chapter of Pakistan's electricity crisis. It is also the most uncomfortable to write about, because the easiest way to discredit any reform proposal is to characterise it as anti-China.
I am not anti-China. I am pro-Pakistan. The two are not in conflict. A renegotiated CPEC, where Pakistan actually pays at sustainable rates rather than continuing to default at unsustainable ones, is in China's long-term interest as much as Pakistan's. The current trajectory, where Pakistani consumers cannot pay enough to fund the contracts, where the grid faces financial collapse within five to seven years, where the underlying assets become stranded, serves neither country.
Now you know the CPEC story. Pass it on.
Thank you for reading.
, Asad Baig, Lahore, April 2026
Frequently asked questions
What are the CPEC power plants? Approximately 21 power plants built or contracted in Pakistan between 2014 and 2018 under the China-Pakistan Economic Corridor. Combined capacity about 6,000 megawatts. Combined contract value, including financing, around $35 billion. Owners predominantly Chinese state-owned enterprises. Financing predominantly from Chinese state banks.
What is the return on equity for CPEC IPPs? 27 to 34 percent guaranteed in US dollars over thirty-year contract terms. Significantly higher than the 15-18 percent under the 1994 Power Policy and the 12-13 percent under the 2002 Power Policy. By international comparison, extraordinary for sovereign-guaranteed thermal projects.
What did the 2020 inquiry find about Sahiwal and Port Qasim? Excess capital costs of approximately Rs. 32.46 billion at Sahiwal alone, due to misrepresentation by sponsors regarding interest deduction periods. The interest had been calculated for forty-eight months when the plant was actually completed in twenty-seven to twenty-nine months. Combined excess payments to Sahiwal and Port Qasim estimated at $2.5 to $2.6 billion over the contract life.
Why has Pakistan not renegotiated CPEC IPP terms? Multiple factors. China is not a private investor but a state actor. China holds billions in Pakistani sovereign debt and provides political support at international forums. The 2020 inquiry that documented CPEC excess payments was buried under reported pressure from a "friendly country" widely understood to be China. No Pakistani government in the past six years has been willing to push for substantive renegotiation.
Are CPEC IPPs included in the current Shehbaz Sharif government's renegotiation efforts? No. The Shehbaz government has terminated five domestic IPPs and renegotiated fourteen others since October 2024. None of the renegotiated plants have been Chinese. CPEC remains untouched in the current reform program.
When do the CPEC IPP contracts expire? Approximately 2040 to 2045, depending on the specific plant and date of commercial operation. Until then, Pakistani consumers will continue paying capacity charges to Chinese state-owned enterprises whether the plants run or not.
Sources and notes
- Power Sector Inquiry Report 2020, Government of Pakistan, headed by Muhammad Ali, former SECP Chairman (ARY News mirror)
- The Diplomat, China in Pakistan's Power Sector: The Hidden Costs (January 2025)
- IEEFA Reports on Pakistan Power Sector by Haneea Isaad (2024-2025)
- PIDE, Energy Projects under CPEC: A Game Changer?
- Arab News, Pakistan yet to engage Chinese IPPs on contract revisions (2024)
- Dawn, multiple investigative pieces on CPEC capacity payments
- CPEC.gov.pk, Energy Projects (Pakistani government)
Related reading from Asad Baig
The pillar this explainer supports
Sibling explainers in this cluster
- The 1994 Power Policy: How One Year Locked Pakistan Into Thirty
- The 2002 and 2006 Repeats: How Each Government Made the Crisis Worse
- The 2020 Inquiry Report That Was Buried
Asad Baig