ISLAMABAD: In a significant step toward financial stability, the federal government is preparing to reduce Pakistan’s circular debt in the power sector from Rs2.381 trillion to approximately Rs561 billion. This reduction aligns with commitments made to the International Monetary Fund (IMF) and involves disbursing Rs1,275 billion secured from 18 commercial banks.
According to a senior Power Division official, the funds—borrowed through the Central Power Purchase Agency-G (CPPA-G)—will be used to repay Power Holding Limited (PHL) liabilities of Rs683 billion and interest-bearing arrears to power producers amounting to Rs569 billion. The new debt level will be officially posted on the Power Division's website once finalized.
This substantial reduction is attributed to the efforts of the Power Sector Task Force, which includes experts from regulatory bodies like SECP, CPPA-G, and Nepra. Through negotiations with Independent Power Producers (IPPs), the task force managed to clear Rs348 billion in arrears and secure the waiver of Rs387 billion in Late Payment Interest (LPI).
While Rs561 billion will remain in circular debt—comprised of both interest-bearing and non-interest-bearing liabilities—it is expected to be addressed through further reforms and improved efficiency of distribution companies (Discos).
To repay the Rs1,275 billion loan, electricity consumers will continue paying a Debt Service Surcharge (DSS) of Rs3.23 per unit for the next six years. This surcharge is already active and will not increase consumer bills further. However, the IMF-required cap of 10% on the surcharge has been removed as part of structural reforms.
