The Power Division has asked Prime Minister Shehbaz Sharif to attend the signing ceremony of agreements with 18 banks for raising Rs. 1.225 trillion to address the power sector circular debt. This financing will help retire a portion of the circular debt, which currently stands at nearly Rs. 1.7 trillion, reduced from Rs. 2.5 trillion last year.
Officials confirmed that all approvals and paperwork for the package have been completed. The boards of Discos, CPPA-G, the Power Division, and the Finance Division have cleared the deal. With the Prime Minister’s nod, the ceremony is expected to take place soon at the PM Office.
Explaining the financing details, sources said the Rs. 1.225 trillion loan differs from the Rs. 1.275 trillion figure earlier mentioned. The gap of Rs. 50 billion stems from quarterly payment limits. The government fixed repayments at Rs. 310 million per quarter, keeping the burden manageable. A higher cap of Rs. 325 million would have raised the loan to Rs. 1.275 trillion but also pushed up the prevalent Debt Servicing Surcharge of Rs 3.23/kWh.
Out of the total loan, Rs. 659 billion will go toward retiring debts of Power Holding Limited (PHL). The remaining amount’s allocation whether to power producers, the petroleum sector, or subsidies is yet to be decided.
Once the agreements are signed, the government will have one month to request funds, which must be drawn within the following three months. Officials say this will also test whether Independent Power Producers (IPPs), including Chinese companies, are ready to offer discounts on outstanding dues.
The 18 banks involved in this mega-financing package include Meezan Bank, Habib Bank, National Bank, Allied Bank, United Bank, Faysal Bank, Bank Al Habib, MCB Bank, Bank Alfalah, Dubai Islamic Bank, Bank of Punjab, Bank Islami Pakistan, Askari Bank, Habib Metropolitan Bank, Al Baraka Bank, Bank of Khyber, MCB Islamic and Soneri Bank.
The federal cabinet has already approved the plan with some amendments, authorizing CPPA-G to handle public service obligations, sign agreements, and arrange securities on behalf of power distribution companies. Law changes were also approved, including amendments to the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, and the Sales Tax Act, 1990, which will be added to the Finance Bill 2025-26.
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The government has allowed the immediate release of Rs. 267 billion, already earmarked in the Power Division’s budget, to CPPA-G for equity investment in Discos. In addition, Rs. 393 billion will be issued as a supplementary grant. These amounts will help clear dues of government-owned power plants and other projects, including Uch-I and Uch-II, for onward payments to OGDCL.
The cabinet also permitted CPPA-G to use part of the loan proceeds to pay off Rs. 683.253 billion in debt owed by Power Holding Limited. Payments to independent power producers will only be made if they agree to forgo late payment charges.
Exemptions from competitive bidding under PPRA rules were granted as well, since the loan terms are well below the market’s interbank rates.
To further tackle circular debt, the cabinet endorsed changes to the Pakistan Energy Sukuk Rules, 2019, allowing sukuk to be redeemed before their maturity.
