Pakistan Must Restore Chinese Investor Confidence in Its Energy Transition.
March 06, 2025
By: [JNOUBIUPDATE]
Key Findings
Despite repeated government efforts to attract foreign direct investment (FDI) in Pakistan’s energy sector, investor confidence remains low due to unresolved structural challenges.
China has been Pakistan’s most significant energy sector investor, contributing approximately USD 68 billion between 2005 and 2024 under the China-Pakistan Economic Corridor (CPEC), with 74% of these funds allocated to energy projects.
Security risks, cumbersome permitting procedures, unpredictable regulatory changes, and outstanding arrears for CPEC power plants have discouraged Chinese investors.
As CPEC enters its second phase (CPEC 2.0), Pakistan must leverage China’s advancements in renewable energy, particularly in solar PV modules, lithium-ion batteries, and electric vehicles (EVs), while ensuring a secure and stable policy environment.
In January 2024, a 600 MW solar power project in Muzaffargarh failed to attract investors, with developers citing high political and financial risks. Even China, Pakistan’s strongest strategic ally, did not show interest.
China’s Investment Footprint in Pakistan’s Energy Sector
CPEC has played a pivotal role in Pakistan’s energy expansion. With a USD 21.3 billion energy portfolio, early CPEC projects prioritized coal power:
Out of 13 GW of added capacity, 8 GW came from coal-fired power plants, while solar and wind projects contributed just 1.4 GW.
However, China’s global energy investment strategy is evolving. In 2021, President Xi Jinping announced a ban on new overseas coal projects, encouraging a shift towards clean energy solutions.
Shift in China’s Global Investment Priorities
Since COVID-19, China has diversified its investment strategy, reallocating capital away from Pakistan and towards the Middle East, Sub-Saharan Africa, and East Asia.
Between 2021 and 2024, only USD 4.86 billion of Chinese capital was invested in Pakistan’s energy sector, primarily towards a nuclear power plant in Chashma.
Meanwhile, Chinese investments in Indonesia’s nickel smelting industry and Middle Eastern infrastructure projects have surged, driven by policy stability, industrial incentives, and stronger economic partnerships.
Countries such as Indonesia have attracted Chinese capital by implementing export bans on unprocessed minerals, forcing investors to establish local value-added manufacturing.
Challenges Discouraging Chinese Investment in Pakistan
1. Security Concerns:
Rising militant attacks on Chinese workers and projects have led to calls for stricter security measures.
In October 2024, Chinese staff at the Port Qasim Power Plant were targeted, adding to investor fears.
2. Regulatory and Financial Barriers:
Cumbersome approval processes and frequent policy shifts have led to project delays.
CPEC power plants are owed USD 1.4 billion in arrears, affecting financial liquidity.
In May 2023, Port Qasim Electric Power Company (PQEPC) issued a default notice for unpaid dues worth USD 276 million, a figure that surged to USD 315 million by October 2024.
3. Industrial Stagnation and High Energy Costs:
Pakistan has tried to incentivize investment through special economic zones (SEZs) and tax breaks, but persistent high electricity and gas costs hinder competitiveness.
The Future of Chinese Investment in Pakistan’s Energy Transition
China’s largest clean energy investor in Pakistan, China Three Gorges Group, has not reinvested since 2016 and has instead expanded its operations in Egypt and Jordan, where it recently developed 400 MW of renewable energy projects. While China Three Gorges’ Pakistan subsidiary (CSAIL) has planned two major hydropower projects (1,124 MW Kohala and 640 MW Mahl), progress is stalled due to: Delays in securing insurance approvals from China’s state-owned insurer, Sinosure. Pakistan’s exclusion of these projects from its latest energy generation plan, further diminishing investor confidence.
Restoring Investor Trust: The Way Forward
To revive Chinese investment, Pakistan must:
1. Enhance Security Measures to protect foreign workers and projects.
2. Ensure Regulatory Stability by streamlining approval processes and maintaining consistent policies.
3. Address Financial Arrears to improve investor liquidity and reinvestment prospects.
4. Prioritize Renewable Energy in CPEC 2.0, aligning with China’s global green energy shift.
Pakistan’s economic recovery and energy transition depend on restoring Chinese investor confidence. Without decisive policy reforms and strong governance, CPEC’s second phase may stru
ggle to take off, jeopardizing the country’s long-term energy security and industrial growth.
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