Pakistan seals Rs1.275tr bank deal to cut power sector debt

Pakistan is finalising a Rs1.275 trillion financing package with a consortium of 18 commercial banks to shrink the country’s circular debt in the power sector. According to an invitation issued by the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G), the repayment burden will be met through the existing debt-service surcharge of Rs3.23 per unit that consumers already pay on monthly bills. Prime Minister Shehbaz Sharif is expected to witness the signing virtually from New York, reflecting the government’s emphasis on the transaction under the IMF programme. Officials familiar with the structure say the facility is intended to permanently retire legacy obligations without fresh strain on the federal budget. As outlined, banks will advance about Rs617 billion in fresh loans at a concessionary price of three-month KIBOR minus 0.90 percentage points, repayable in 24 equal quarterly instalments over six years. The balance will go towards settling long-standing payables across the chain. Annual collections via the surcharge are projected near Rs323 billion, which will be ring-fenced for debt service. Break-up shared with stakeholders indicates roughly Rs683 billion will clear liabilities of the Power Holding Limited (PHL) while around Rs592 billion will settle arrears owed to independent power producers (IPPs). The package follows cabinet approval earlier this year and is framed as a key plank of broader reforms to improve liquidity for distribution companies (Discos) and reduce the system’s reliance on ad-hoc fiscal support. Authorities say the circular debt stock, recorded north of Rs1.6 trillion in July, is targeted to fall sharply once the facility is fully executed. They note the debt build-up had peaked above Rs2.3 trillion earlier in the year but has eased after a series of one-off measures, including the termination of underperforming IPP contracts, negotiated waivers on late payment surcharges estimated at Rs387 billion, and the clearance of Rs348 billion in arrears through a mix of budgeted subsidies and CPPA payments. Unlike a previous PHL-backed loan that carried a sovereign guarantee, the new arrangement is being extended directly to CPPA-G, secured against the sector’s receivables. Regulators and lenders view the risk-sharing shift as a step toward market-based discipline. Representatives from key ministries, the State Bank, NEPRA and multilateral partners are expected to attend the ceremony alongside senior executives from participating banks. Officials add that while the DSS cap has been removed to meet IMF benchmarks, there is no plan to increase the Rs3.23/unit rate at this stage. The government underscores that the surcharge has already been embedded in tariffs and will continue over the repayment horizon as reforms—such as loss reduction and improved recoveries—are pursued to prevent fresh accumulation.