Rs659.6 billion guaranteed for power sector debt settlement, remittance subsidy to be phased out by FY27

The Economic Coordination Committee (ECC) of the federal cabinet approved the issuance of a Rs659.6 billion guarantee for the settlement of Power Holding Company’s debt, alongside a series of measures to address fiscal and energy sector challenges.

In a key decision, the ECC approved a Rs659.6 billion government guarantee for circular debt financing of Rs1.225 trillion, intended to clear outstanding dues owed to independent power producers (IPPs) and to settle Power Holding Limited’s (PHL) debt. 

This step comes after the government and commercial banks recently signed financing and security agreements to secure the loan, which will be repaid by electricity consumers through a surcharge of Rs3.23 per unit.

To meet the financing condition, the Ministry of Finance will issue a Letter of Comfort (LoC), taking responsibility in case the power sector fails to repay its debt. This letter will be accepted by Habib Bank Limited for the first drawdown of circular debt financing.

In addition to the circular debt settlement, the ECC deliberated on the phase-out of the Home Remittance Incentive Scheme (HRIS). The Ministry of Finance proposed the gradual removal of the scheme, with a complete phase-out expected by FY27. 

The central bank has recommended a gradual rationalization of the HRIS incentives to avoid significant disruption in remittance inflows. The government aims to evaluate the outcomes of HRIS revisions in FY26 before finalising the phase-out timeline.

The committee also approved the allocation of gas from Mari Fields to fertilizer plants to ensure adequate and affordable fertilizer supply. Under this decision, major fertilizer plants, including Fatima Fertilizer, Agritech, and Fauji Fertilizer Bin Qasim, will receive a steady supply of 170 mmcfd of gas over the next two years. 

This move is part of a $200 million investment in Mari Energies to secure long-term gas supply for these plants. The raw gas will be delivered from the Ghazij-Shawal facility, with fertilizer plants installing gas processing and compression facilities.

Further financial decisions included waiving Rs119.5 billion in late payment interest for the Pakistan Atomic Energy Commission (PAEC) and passing on Rs22 billion of financial obligations to gas consumers. The ECC also authorized CPPA-G to pay Rs89.5 billion to OGDCL in a lump sum, replacing the original 18-month installment plan.

The ECC endorsed a proposal from the Ministry of National Food Security for the reallocation of funds to support ongoing agricultural research. This reallocation will help fund critical agricultural initiatives as part of a technical supplementary grant.

Moreover, the committee addressed tariff rationalization for nuclear and government-owned power plants. The approved framework for tariff adjustments and outstanding dues settlement aims to support fiscal balance and stabilize the power sector’s finances.

In discussions related to the power sector, the ECC also approved the issuance of a Memorandum of Understanding (MoU) with PAEC, and authorized CPPA-G to execute negotiated settlement agreements (NSAs) for restructuring power purchase agreements. PAEC was further authorized to file tariff petitions with Nepra for new tariffs for five nuclear power plants, based on debt adjustments among the parties.

Despite these measures, some ECC members raised concerns that the agreements would not lead to significant tariff reductions, with prices expected to rise due to quarterly tariff adjustments and monthly fuel cost adjustments.