Islamabad, Pakistan – In a significant financial maneuver aimed at revitalizing Pakistan’s struggling energy sector, the government is set to slash the power sector’s staggering circular debt from Rs2.381 trillion to approximately Rs561 billion. This substantial reduction will be achieved through payments of Rs1.275 trillion, secured from 18 commercial banks.
“We are going to disburse in the current or next week the amount of Rs1.275 trillion to limit the menace of circular debt in the power sector to close to Rs561 billion as has been promised with the IMF,” a senior official from the Power Division confidentially informed The News.
The Central Power Purchase Agency-G (CPPA-G) will utilize this Rs1.275 trillion borrowed loan to settle all PHL loans (Rs683 billion) and clear the remaining balance of interest-bearing arrears owed to power producers (Rs569 billion). These disbursements are expected to bring the circular debt down to Rs561 billion, a figure that will subsequently be published on the Power Division’s official website.
“The credit for significantly reducing the circular debt goes to the Task Force on Power Sector,” the official stated. This Task Force comprises Adviser to PM Muhammad Ali, Lt General Zafar Iqbal, and official experts from SECP, CPPA-G, and Nepra. “Through negotiations with Independent Power Producers (IPPs), they cleared arrears of Rs348 billion (Rs127 billion through budgeted subsidy and Rs221 billion paid by CPPA-G).”
Moreover, the Task Force successfully negotiated a substantial waiver of Late Payment Interests (LPIs) from IPPs, totaling Rs387 billion. An additional Rs254 billion has been cleared through a supplementary budgeted subsidy specifically allocated for circular debt clearance.
However, a remaining balance of Rs561 billion will persist as circular debt, consisting of Rs224 billion in non-interest-bearing liabilities and Rs337 billion in interest-bearing liabilities. This outstanding amount is slated to be addressed through ongoing reforms and efficiency improvements within the Distribution Companies (Discos).
Electricity consumers will be responsible for retiring the Rs1.275 trillion loan through a Debt Service Surcharge (DSS) of Rs3.23 per unit. This surcharge is already in effect and is being paid by consumers via their electricity bills, ensuring no new financial burden on them. However, under this latest arrangement, consumers will continue to pay this surcharge for the next six years to offset the Rs1.275 trillion loan. The official clarified that while the Rs3.23 per unit surcharge is not new, its duration will now extend for six years to facilitate loan repayment.
Responding to a query, the official mentioned that the Rs3.23 per unit surcharge had previously reached its 10% cap. However, at the insistence of the International Monetary Fund (IMF), this 10% cap has been removed as it was deemed a structural benchmark.
