Pakistan seeks $36 billion refinancing to ease power sector debt, cut tariffs

Pakistan is in talks with international lenders and Saudi Arabia to secure around $36 billion in long-term financing over 13 years starting FY27 to refinance the power sector’s debt servicing obligations, a move aimed at lowering electricity tariffs, particularly for industry, Business Recorder reported, citing official sources.

Officials said discussions are underway with International Financial Institutions, including the World Bank and the Asian Development Bank, at an indicative interest rate of around 2%, while parallel engagement with Saudi Arabia is focused on securing financing at about 1%.

The Power Division has already presented its refinancing proposals to the World Bank and the Asian Development Bank during meetings held in recent months.

Under the proposed plan, refinancing would be spread over 13 years, with requirements estimated at $4.40 billion in FY27, $4.18 billion in FY28, $4.44 billion in FY29, $3.97 billion in FY30, $3.19 billion in FY31, $3.22 billion in FY32, $2.91 billion in FY33, $2.52 billion in FY34, $2.22 billion in FY35, $1.40 billion in FY36, $1.36 billion in FY37, $1.28 billion in FY38 and $1.21 billion in FY39.

Officials said the power sector’s circular debt currently stands at around Rs1.8 trillion, while the government aims to contain it at Rs1.6 trillion by June 30, 2026. As part of recent measures, the government raised Rs1.225 trillion from commercial banks to reduce circular debt and decided to continue recovery of the debt service charge at Rs3.23 per unit for the next six years to bring it to zero.

Accoridng to the BR report, if refinancing is arranged from IFIs at an interest rate of about 2%, industrial electricity tariffs are projected at 8.70 cents per unit in FY27, 8.48 cents in FY28, 8.23 cents in FY29, 8.34 cents in FY30, 8.66 cents in FY31, 8.56 cents in FY32, 8.72 cents in FY33, 9.08 cents in FY34, 9.18 cents in FY35, 9.59 cents in FY36, 9.46 cents in FY37, 9.34 cents in FY38 and 9.18 cents in FY39.

In case financing is secured from Saudi Arabia at around 1% interest, the projected industrial tariff would be 8.62 cents per unit in FY27, 8.34 cents in FY28, 8.02 cents in FY29, 8.12 cents in FY30, 8.45 cents in FY31, 8.35 cents in FY32, 8.52 cents in FY33, 8.88 cents in FY34, 8.99 cents in FY35, 9.42 cents in FY36, 9.30 cents in FY37, 9.18 cents in FY38 and 9.03 cents in FY39.