ISLAMABAD: In a significant move aimed at addressing the long-standing issue of circular debt in Pakistan’s power sector, the federal government has signed a Rs1.275 trillion loan agreement with a consortium of 18 commercial banks.
The financing deal was finalized at a ceremony held at the Prime Minister’s Office in Islamabad, with Prime Minister Shehbaz Sharif attending remotely from New York, where he is participating in the UN General Assembly.
The agreement offers the funds at a reduced interest rate calculated at the 3-month Karachi Interbank Offered Rate (KIBOR) minus 0.9%. This is a notable shift from previous approaches that focused on maintaining debt levels, with the current strategy centered on reducing the debt stock through structured financing mechanisms. Loan repayments will be facilitated through an existing electricity bill surcharge of Rs3.23 per unit, which is already being paid by consumers.
According to a statement from the Ministry of Finance, this initiative was spearheaded by the Prime Minister’s Task Force on Power, working closely with the Ministry of Energy, the State Bank of Pakistan, the Pakistan Banks Association, and the 18 participating banks.
The funds will be distributed in two major segments: Rs683 billion will go to the Power Holding Company, while Rs592 billion is earmarked for settling outstanding dues of Independent Power Producers (IPPs).
The repayment plan spans 24 equal quarterly installments. The government has placed an annual repayment cap of Rs323 billion, with a maximum ceiling of Rs1.938 trillion to account for any future increases in interest rates.
This financing deal is part of broader energy sector reforms under Pakistan’s $7 billion program with the International Monetary Fund (IMF), which targets fiscal consolidation, improved energy sector governance, and reduction of circular debt.
