The federal government has signed a landmark Rs1,275 billion loan agreement with a consortium of 18 banks in a major breakthrough to resolve Pakistan’s long-standing circular debt crisis in the energy sector.
The agreement aims to eliminate circular debt without imposing any additional burden on electricity consumers.
According to the Ministry of Energy, this financing arrangement comes with consumer-friendly terms, ensuring that households and businesses will continue to pay only the existing debt servicing surcharge of Rs3.23 per unit. There will be no new surcharges introduced under the deal.
The loan will be repaid over a period of five to six years and is being provided at a highly concessional rate of three-month KIBOR minus 0.9%, a rare instance of negative interest financing in Pakistan’s financial history.
Strategic allocation of funds
Out of the total Rs1,275 billion:
- Rs683 billion will be allocated for the repayment of existing loans held by Power Holding Limited (PHL).
- Rs592 billion will be paid to Independent Power Producers (IPPs) to settle old outstanding dues.
The Ministry of Energy confirmed that this restructuring will allow the government to replace old, high-interest loans with more affordable financing, improving the fiscal health of the power sector over the long term.
No extra burden on consumers
Officials emphasized that the new loan will not increase electricity bills, as consumers are already paying a debt servicing surcharge which will continue as is for the next five to six years. The government is expected to repay around Rs323 billion annually to the banking consortium under this arrangement.
‘Historic milestone,’ says finance adviser
Federal Finance Minister’s Adviser Khurram Schehzad lauded the agreement in a message on X (formerly Twitter), calling it a “historic development” in Pakistan’s energy reform agenda.
“The Shehbaz Sharif-led government has undertaken bold and meaningful energy sector reforms. The chronic issue of circular debt has now been systematically addressed without burdening the common citizen,” he said.
He added that the efforts of the task force formed on the Prime Minister’s directives were crucial in securing this agreement, which is seen as a major step towards financial sustainability and energy sector stability in Pakistan.
