SBP rate hike may add Rs13 billion annual cost to CPPA-G circular debt loans

The recent 100 basis points increase in the policy rate by the State Bank of Pakistan is expected to raise the financial cost of loans held by Central Power Purchasing Agency (Guarantee) Limited, which were secured to address circular debt in the power sector, Business Recorder reported. 

Officials said the impact relates to a Rs1.225 trillion financing facility arranged from 18 commercial banks for a six-year period at a rate of KIBOR minus 90 basis points. The facility includes Rs659.6 billion in restructured loans already on banks’ balance sheets and Rs565.4 billion in fresh financing. It was also used to retire earlier loans of Rs659 billion held by Power Holding Limited.

Based on estimates, a 1% increase in interest rates could raise CPPA-G’s annual repayment burden by around Rs12–13 billion. However, officials said the Debt Service Surcharge (DSS) of Rs3.23 per unit is not expected to change.

One official said the increase would affect repayments to banks but would not be passed on to electricity consumers. Another official noted that since the loans are linked to KIBOR minus 90 basis points, the immediate financial impact may remain limited, although future effects cannot be ruled out.

The participating lenders include Habib Bank Limited, Meezan Bank Limited, National Bank of Pakistan, Allied Bank Limited, United Bank Limited, Faysal Bank Limited, Bank AL Habib Limited, MCB Bank Limited, Bank Alfalah Limited, Dubai Islamic Bank Pakistan Limited, The Bank of Punjab, BankIslami Pakistan Limited, Askari Bank Limited, Habib Metropolitan Bank Limited, Al Baraka Bank (Pakistan) Limited, Bank of Khyber, MCB Islamic Bank Limited and Soneri Bank Limited.

According to the International Monetary Fund, Pakistan is also implementing a plan to convert up to 80% of the existing circular debt stock, primarily CPPA payment arrears, into CPPA debt through a new Sukuk structure.

The IMF noted that the move could reduce interest costs on arrears, which have accounted for a significant portion of circular debt accumulation in recent years, and help lower debt flow targets through FY2031.

The Fund has advised that all payments under the restructuring be financed through the existing DSS, and previously recommended removing the cap on the surcharge to allow adjustments if required.

However, the government has retained the DSS at Rs3.23 per unit, following discussions with the IMF that additional increases may not be required to service the Rs1.225 trillion facility over its tenure.