Pakistan’s government sealed a Rs1.25 trillion loan deal with commercial banks at under 11% interest, 3-5% below past rates, to wipe out the power sector’s circular debt.
Sources confirmed that this cornerstone of a three-pronged strategy, finalized Thursday in the Finance Ministry with civil-military input, aims to bolster the sector’s viability. The Pakistan Power Debt plan, briefed to the IMF a day prior, promises stock elimination, though flow issues linger.
The loan, pegged at 1% below the Karachi Interbank Offered Rate (KIBOR) around 10.8% outshines the 14% on prior bank loans and 16% penalties to Independent Power Producers (IPPs). Logged under the Central Power Purchasing Agency (CPPA), it sidesteps public debt tallies. Of the Rs2.4 trillion circular debt, Rs1.5 trillion gets settled via this Rs1.25 trillion plus Rs250 billion in budget space. Another Rs463 billion shrinks through IPP deal revisions, and Rs225 billion needs no action.
Pakistan’s energy sector is at a breaking point. As solar adoption surges, circular debt is spiraling, and DISCOs are failing.
Can govt reforms—DISCO privatization, net metering changes & industrial power incentives—fix the crisis or make it worse?
Watch today's episode of On… pic.twitter.com/6PGJiys0H8
— Nukta Pakistan (@NuktaPakistan) March 3, 2025Breaking It Down
- Debt Allocation: Rs683 billion clears Power Holding Limited’s pricier KIBOR+2% loans, Rs280 billion goes to nuclear plants, Rs220 billion to LNG plants, Rs5 billion to state plants, and coal dues get tackled too.
- Repayment Plan: Over six years, a Rs2.83/unit consumer surcharge—yielding Rs350 billion yearly—covers it. Year one’s Rs135 billion interest leaves Rs215 billion for principal, though rising KIBOR could squeeze that.
- Collateral: Rs200 billion in unencumbered Disco land backs part of the loan, with Rs683 billion guaranteed anew.
The government is also pushing IPPs to waive Rs272 billion in interest for full upfront payments, further slashing costs.
Read: Nepra Slashes Fuel Costs: Rs3 Cut for KE, Rs2.12 for Discos in March Bills
IMF Talks and Challenges
Briefed to the IMF, the Pakistan Power Debt stock drops to zero, but annual flow capped at Rs11 billion in H1 FY25 may take 3-4 years to halt due to theft, losses, and inefficiencies. Debt hit Rs2.48 trillion by February (up Rs100 billion since H1’s Rs2.384 trillion), with provisional tweaks pending.
Power Minister Awais Laghari told a cabinet meeting that the IMF balked at extending winter relief or waiving GST, probing December’s 6.9% and January’s 2.7% industrial power spikes.
The Pakistan Power Debt deal is a Shehbaz Sharif win with military muscle cuts, costs, and chaos.
