The federal government has signed a Rs1.225 trillion financing agreement with a consortium of 18 banks to address the country’s power sector circular debt, which currently stands at around Rs1.7 trillion.
According to reports, the signing ceremony, which took place virtually with Prime Minister Shehbaz Sharif joining from New York, was attended by key government officials and stakeholders from the energy sector.
The government had initially considered providing a Debt Service Support (DSS) of Rs325 million per quarter, which would have increased the facility to Rs1.275 trillion. However, it opted to maintain the existing power tariff adjustment of Rs3.23 per unit, capped at 10% of the total revenue from the power sector.
The Rs1.225 trillion financing facility will be used to partially retire the circular debt, with Rs659 billion allocated to repaying loans previously taken by Power Holding Limited (PHL). The loan is being repaid through the existing Debt Service Surcharge (DSS) already included in electricity bills, which will be redirected to the consortium of banks over the next four to six years. This approach is designed to avoid placing additional financial burdens on consumers, as there will be no increase in tariffs or new charges introduced.
The financing agreement was finalised after consultations with key stakeholders, including the International Monetary Fund (IMF) and the World Bank, both of which have already conveyed their consent for the transaction. The deal aims to reduce high interest costs on existing debt by refinancing it with lower-interest loans, helping stabilize the power sector’s finances.
The Ministry of Finance on Thursday welcomed the successful resolution of Rs1.225 trillion power sector circular debt, terming it a decisive step toward restoring fiscal discipline, investor confidence and sustainability in the energy sector.
The ministry said the landmark restructuring was achieved through a historic joint effort led by the Prime Minister’s Task Force on Power in coordination with the Ministry of Energy, the State Bank of Pakistan, the Pakistan Banks Association (PBA) and 18 partner banks.
“This achievement reflects the strength of teamwork across institutions united to address one of the most chronic challenges of Pakistan’s energy sector,” said a press release issued by the finance ministry.
Commenting on this achievement, Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb underscored that the resolution marks a decisive step toward restoring fiscal discipline, investor confidence, and energy sector sustainability.
Highlighting the broader significance of the achievement, the Finance Minister said this milestone was a testament to the power of collective leadership and effective teamwork, underpinned by technical excellence, inter-institutional coordination, and public-private collaboration.
