Eighteen leading commercial banks have finalised a Rs1.275 trillion ($4.6 billion) rescue plan to support the country’s ailing power sector, aiming to address the growing circular debt, The News reported.
The deal, which includes both refinancing existing debt and providing new capital, is designed to prevent further accumulation of circular debt and mitigate the ongoing energy crisis.
According to the report, the agreement was formalised with the signing of a term-sheet at Habib Bank Limited (HBL) in Karachi. The disbursement of funds is expected to commence in May 2025.
Eighteen commercial banks will participate in the transaction, with contributions based on their 2024 financial results. The National Bank of Pakistan (NBP) will lead the lending group, followed by Habib Bank, United Bank, MCB, and other financial institutions.
Under the terms of the deal, banks will refinance Rs658 billion worth of term finance certificates through the Pakistan Holding Company (PHCL).
Additionally, a fresh loan of Rs617 billion will be provided to the Central Power Purchasing Agency (CPPA), the government body responsible for managing power procurement from generation companies.
The funds raised will be used to reduce part of the Rs2.5 trillion circular debt of the power sector that has long hindered the sector’s liquidity and strained national finances.
The loan, with an interest rate of 10.5% to 11%, will be repaid over six years. Consumers will bear the cost through a debt servicing surcharge (DSS) of Rs3.23 per unit of electricity.
According to a Finance Minister report, circular debt in the energy sector had peaked at Rs4,700 billion by December 2024. Of this, Rs2.4 trillion is attributed to the power sector, while the remaining Rs2.3 trillion is linked to the gas sector.
Of the Rs2.4 trillion circular debt, Rs720 billion has already been settled by clearing past dues of IPPs whose contracts ended or were switched to a “take and pay” model. Authorities have resolved Rs450 billion in IPP payments, with Rs300 billion paid and Rs150 billion in late payment surcharges waived. Additionally, Rs286 billion owed to WAPDA has been settled without interest charges.
Officials believe addressing circular debt will help stabilize the power sector, which is set for private market participation and the privatization of power distribution companies (DISCOs).
Data from the Power Division indicates that circular debt declined by Rs12 billion to Rs2.38 trillion between July and November FY25. However, DISCOs’ inefficiencies and under-recoveries contributed Rs170 billion in losses—Rs94 billion due to operational inefficiencies and Rs76 billion from revenue shortfalls.
Payables to power producers stood at Rs1.61 trillion, while loans parked in the Power Holding Private Company (PHPL) amounted to Rs683 billion.
GENCOs’ outstanding dues to fuel suppliers reached Rs90 billion in the first five months of the fiscal year. Meanwhile, budgeted but unreleased subsidies totaled Rs5 billion, and interest payments on PHPL loans and IPP settlements accounted for Rs70 billion.
The latest loan agreement is seen as one of the largest coordinated efforts by Pakistan’s banking sector to stabilise the energy sector, which continues to face significant challenges such as technical losses, poor governance, and delayed payments to IPPs.
