Islamabad, Mar 7, 2025: The federal government has successfully secured a deal with commercial banks to borrow Rs. 1.25 trillion at an interest rate below 11%.
This initiative aims to address the mounting circular debt crisis in the energy sector.
The newly structured loan significantly lowers borrowing costs compared to past loans, which had interest rates reaching 14% and penalties as high as 16% for delayed payments to Independent Power Producers (IPPs), according to reports from Express Tribune.
This Rs. 1.25 trillion loans will be accounted for under the Central Power Purchasing Agency (CPPA) rather than being added to the nation’s total public debt.
After negotiating with the International Monetary Fund (IMF), the government formulated this agreement as a key component of its strategy to resolve circular debt and control its future buildup over the next three to four years.
Under this arrangement, commercial banks will provide funding at an interest rate that is 1% lower than the Karachi Interbank Offered Rate (KIBOR), which translates to nearly 10.8%.
The government had initially proposed a fixed rate of 8%, but banks refused the offer.
The repayment plan spans six years, with the debt servicing cost covered by an existing surcharge of Rs. 2.83 per unit on electricity bills.
This surcharge generates around Rs. 350 billion annually. In the first year, Rs. 135 billion will be allocated to interest payments, while Rs. 215 billion will be used to repay the principal.
However, if interest rates rise, the amount available for principal repayment may decrease.
The government’s comprehensive strategy includes settling Rs. 1.5 trillion of the Rs. 2.4 trillion circular debt through a mix of fresh loans and budgetary allocations.
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Additionally, Rs. 463 billion will be reduced through renegotiated agreements with IPPs, while Rs. 225 billion of the debt will not require settlement.
From the Rs. 1.25 trillion borrowed, Rs. Out of the total amount, Rs. 683 billion will be allocated to restructure the debt of Power Holding Limited, originally taken at KIBOR plus 2%.
The remaining funds will be used to settle dues for nuclear, LNG, coal, and state-owned power plants.
Additionally, the government is in discussions with IPPs to waive Rs. 272 billion in interest charges in exchange for upfront payments. 
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However, The minister emphasized the government’s dedication to maintaining open dialogue with key sectors to address their concerns effectively in upcoming financial policies.
High-ranking officials, including the Chairman of the Federal Board of Revenue (FBR), the Secretary of the Commerce Division, and senior representatives from the Finance Division and FBR, attended the meeting.
