In a major financial breakthrough, the government of Pakistan is preparing to reduce the country’s power sector circular debt from a staggering Rs2.381 trillion to Rs561 billion. This will be achieved by disbursing Rs1,275 billion, borrowed from 18 commercial banks, to pay off Power Holding Limited (PHL) liabilities and power producers.
Officials say the funds will be released within days to bring the circular debt down, as pledged to the International Monetary Fund (IMF). The amount was borrowed through the Central Power Purchase Agency-G (CPPA-G), which will clear Rs683 billion owed by PHL and another Rs569 billion in outstanding payments to power producers.
According to senior officials, the reduced debt will be reflected on the Power Division’s website once the payments are processed. The move is part of a broader effort to bring sustainability to the debt-laden power sector.
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The government credits the Power Sector Task Force for this development. The task force includes Adviser to the Prime Minister Muhammad Ali, Lt General Zafar Iqbal, and experts from SECP, CPPA-G, and Nepra. Their efforts have led to the waiver of Rs387 billion in Late Payment Interest (LPI) charges and the clearance of Rs348 billion in arrears.
Despite these achievements, Rs561 billion will remain as circular debt—Rs224 billion in non-interest-bearing and Rs337 billion in interest-bearing liabilities. Authorities say this remaining debt will be managed through efficiency reforms in electricity distribution companies (Discos).
The Rs1,275 billion loan will be repaid through a Debt Service Surcharge of Rs3.23 per unit, which consumers are already paying. This surcharge will now remain in place for six more years. Although previously capped at 10 percent, the cap has been lifted under IMF conditions.