ISLAMABAD: In a historic move to address Pakistan’s mounting circular debt in the power sector, the government has finalized a record loan agreement worth Rs 1.275 trillion with around 18 commercial banks. The deal, which comes after months of negotiations over term sheets and legal frameworks, now awaits final approval from the Federal Cabinet.
The financing arrangement is part of the government’s broader circular debt reduction plan—endorsed by the International Monetary Fund (IMF)—and aims to offset a significant portion of the Rs 2.3 trillion debt, including Rs 700 billion currently held by Power Holding Company Limited (PHL) on behalf of power distribution companies (Discos).
Under the agreement, banks will provide fresh loans amounting to Rs 617 billion at an interest rate of 10.50–11%, linked to KIBOR minus 0.2%. Repayments will be made over six years through the Debt Service Surcharge (DSS), presently charged at Rs 3.23 per unit on electricity bills. To meet IMF structural benchmarks, the government plans to uncap DSS via a legislative amendment, allowing for full interest and loan repayments.
Commercial banks initially sought guarantees from the State Bank of Pakistan, but government negotiators stressed the systemic risk posed by a failing power sector. Officials emphasized that the deal marks a crucial turning point, noting that all documentation has been finalized and will be completed within weeks following cabinet approval.
The loan disbursement is expected by the end of this month to reflect reduced circular debt figures in the upcoming federal budget. As per official documents, Rs 1.252 trillion will be used to clear PHL’s liabilities (Rs 683 billion) and settle arrears to power producers (Rs 569 billion), potentially easing long-standing financial strain in the energy sector.
Story by Mushtaq Ghumman
