In a major breakthrough for Pakistan’s power sector, the government is preparing to cut the circular debt from a staggering Rs 2.381 trillion to Rs 561 billion, fulfilling a crucial commitment made to the International Monetary Fund (IMF).
The move, glanced as a landmark step toward financial sustainability, will be executed in the upcoming days through a massive repayment plan.
A senior official from the Power Division confirmed that the Central Power Purchase Agency–Guaranteed (CPPA-G) is set to disburse Rs 1,275 billion, borrowed from 18 commercial banks, to clear the bulk of the sector’s liabilities.
Where the Money Will Go
Out of the borrowed funds:
• Rs 683 billion will be used to pay off loans taken by Power Holding Limited (PHL).
• Rs 569 billion will go toward settling interest-bearing arrears owed to power producers.
This repayment will slash the sector’s debt load to Rs 561 billion, a figure that will be publicly updated on the Power Division’s official website.
Role of the Power Sector Task Force
Much of the credit, officials say, goes to the Task Force on Power Sector, led by Adviser to the PM Muhammad Ali and Lt Gen Zafar Iqbal, along with experts from SECP, CPPA-G, and Nepra.
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Through negotiations with Independent Power Producers (IPPs), the task force successfully secured the waiver of Rs 387 billion in Late Payment Interest. Additionally, Rs 348 billion in arrears was cleared earlier through a mix of budgeted subsidies and CPPA payments.
What Consumers Should Know
While consumers will not encounter any new surcharge, the repayment will be financed through the Debt Service Surcharge (DSS) of Rs3.23 per unit, already included in electricity bills. Under the new arrangement, this surcharge is going to remain in place for the next six years, guaranteeing the loan is gradually retired.
Officials emphasized that this surcharge has already reached the 10% cap — though, at IMF’s insistence, the cap has now been removed as part of structural reforms.
The Road Ahead
Even after this massive clearance, Rs 561 billion in liabilities will remain. Officials keeps on saying these will be managed through efficiency improvements and reforms in power distribution companies (Discos), with a focus on curbing losses and improving bill recovery.
If implemented as planned, this effort could prove to be a turning point for Pakistan’s struggling power sector, long weighed down by mounting debt and inefficiencies.