ISLAMABAD: The government and commercial banks are reportedly finalizing a Rs 1.23 trillion loan agreement aimed at resolving Pakistan’s power sector circular debt. The deal includes Rs 5.23 billion in fresh exposure and the restructuring of Rs 700 billion in existing loans at a lower interest rate, according to sources.
A Power Division team recently held talks with commercial banks in Karachi, emphasizing the urgency of the situation. Following the discussions, banking representatives met with Finance Ministry officials to negotiate terms.
Key Details of the Deal:
Loan Consortium: 15-20 commercial banks
Repayment Period: 2-3 years
Proposed Fixed Interest Rate: 6% (banks are pushing for 7-7.5%)
Debt Servicing Surcharge (DSS): Rs 2.83 per unit (to cover repayments)
Circular Debt Reduction Strategy:
The circular debt currently stands at Rs 2.3 trillion in the power sector and Rs 2.7 trillion in the petroleum sector. The government has already saved Rs 300 billion by waiving Late Payment Interest (LPI) and expects further savings through negotiations with Government Power Producers (GPPs).
The International Monetary Fund (IMF) has been briefed on the plan, with officials confident that replacing high-cost loans with cheaper alternatives will not face resistance.
On January 23, 2025, Prime Minister Shehbaz Sharif directed the Power Sector Task Force to coordinate with the Petroleum Division to develop a comprehensive strategy for reducing circular debt in the petroleum sector.
The government aims to clean company balance sheets by using various financial models, ensuring firms can invest in the sector rather than continue paying excessive interest costs to banks.
Story by Mushtaq Ghumman
