Islamabad, Apr 16, 2025: In a significant move to stabilize Pakistan’s troubled power sector, the Central Power Purchasing Agency-Guaranteed (CPPA-G) is finalizing term sheets with 18 local commercial banks to secure a massive Rs 1.275 trillion financing package.
The government is likely to sign the deal, which aims to bring down the growing circular debt burden—currently at Rs 2.4 trillion—by the end of the week.
The decision comes following approval from the Power Task Force, which has already held detailed consultations with all key stakeholders.
The Ministry of Finance has been actively engaged with the participating banks to iron out the loan structure and avoid future legal complications.
The loan consortium includes financial institutions that have previously provided credit to Pakistan Hydro Electric Limited (PHL) on behalf of power distribution companies (DISCOs), along with several major banks entering the group for the first time.
This funding deal includes fresh borrowing of Rs 617 billion, with interest rates pegged between 10.50% and 11%, indexed to KIBOR minus 0.90 basis points.
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Electricity users will pay a Debt Service Surcharge (DSS) of Rs 3.23 per unit over six years.
However, according to official plans, the government will resolve the current circular debt—roughly 2.1% of Pakistan’s GDP—by the end of the fiscal year 2025.
Key strategies include renegotiating Rs 348 billion in outstanding payments to Independent Power Producers (IPPs), writing off Rs 387 billion in interest, and using Rs 254 billion from budgeted subsidies to offset liabilities.
Nevertheless, Rs 224 billion of non-interest liabilities will remain unpaid.
Although, the government will cover the remainder, approximately Rs 1.252 trillion, with the new loan, mainly to repay existing PHL debts and clear dues to energy suppliers.
Energy Minister Sardar Awais Ahmad Khan Leghari affirmed that these efforts would shrink circular debt to Rs 350 billion.
By fiscal year 2031, the government intends to fully eliminate circular debt through reduced interest payments and improved fiscal control in the power sector.
