In a significant move to revive Pakistan’s struggling energy sector, the government has announced plans to drastically cut the power sector’s circular debt from Rs2.381 trillion to approximately Rs561 billion. This reduction will be achieved through a Rs1,275 billion payment sourced from 18 commercial banks. A senior Power Division official confirmed that the funds will be disbursed imminently, fulfilling a key commitment made to the International Monetary Fund (IMF).
The Central Power Purchase Agency (CPPA-G) will allocate the funds to settle Rs683 billion in loans held by the Pakistan Holding Limited (PHL) and clear Rs569 billion in overdue payments to independent power producers (IPPs). This step is expected to significantly ease the financial strain on the power sector, with the updated debt figures to be publicly shared on the Power Division’s website.
A major breakthrough was achieved by the Task Force on Power Sector, led by PM’s Adviser Muhammad Ali and Lt Gen Zafar Iqbal, which successfully negotiated with IPPs to waive Rs387 billion in late payment interest (LPI). Additionally, Rs254 billion was cleared through a budgeted subsidy, while the remaining Rs561 billion in debt—comprising both interest and non-interest liabilities—will be addressed through reforms and improved efficiency in power distribution companies (Discos).
Consumers will not face additional charges, as the repayment of the Rs1,275 billion loan will be covered by the existing Rs3.23 per unit Debt Service Surcharge (DSS). This surcharge, already part of electricity bills, will remain in place for the next six years. Officials confirmed that the surcharge has reached its 10% cap and will not be increased further, though the IMF has pushed for the removal of this limit as part of structural reforms. This move marks a critical step toward stabilizing Pakistan’s energy sector and ensuring long-term sustainability.