In what is being hailed as a landmark financial and structural breakthrough, Pakistan has tackled the longstanding issue of Circular Debt (CD) in the country's power sector—without passing on additional burden to electricity consumers.
At the heart of this reform lies the Task Force on Energy, constituted by Prime Minister Muhammad Shehbaz Sharif which delivered one of the most critical achievements in recent years.
CD happens when electricity consumers, power companies, and the government, don’t settle payments on time—causing a chain of unpaid bills that builds up over time and weakens the entire power system. This results in a huge pileup of intercorporate debt that runs in thousands of billions. In this regard, to settle the chronic issue:
-A PKR 1,275 billion ($4.5 billion) Sharia-Compliant financing package has been secured through a consortium of 18 domestic banks, including MEBL, HBL, NBP, UBL and others.
- The financing is being raised at a concessional rate of 3M KIBOR minus 0.9%.
- No additional public debt burden will arise from this, and importantly, no new surcharge will be imposed on consumers.
- Full repayment will be made through the existing Debt Service Surcharge (DSS) of ~PKR 3/unit, which will remain in place for the next 5-6 years.
- The funding will refinance PKR 683 billion owed by Power Holding Limited and the rest to help settle long-standing liabilities of Independent Power Producers.
- These liabilities, which previously carried high cost (KIBOR +2% to +4.5%), will now be settled at a drastically reduced cost, easing pressure on the national fiscal and energy ecosystems.
Technical Structure
- Limit: PKR 1,275 billion - Tenor: 6 years | 24 quarterly installments - Annual Commitment: PKR 323 billion | Total cap: 14% interest rate - Repayment Source: Existing DSS - not taxpayers or new charges
Who Made It Happen?
- The Task Force initiated and negotiated this milestone with the financial sector for this critical reform in the energy sector.
- From the Task Froce, Muhammad Ali (then SAPM on Power, now Advisor on Privatization), has been instrumental all along, playing a key role in conceptualizing, structuring and negotiating this landmark deal, backed by Lt. General Zafar Iqbal, National Coordinator of Task Force, supporting the Minister of Power, Mr. Awais Leghari and his team.
- This was all done under the thorough supervision, leadership and professional guidance of the Minister of Finance & Revenue, Muhammad Aurangzeb, firmly supported by Secretary Finance, Mr. Imdad Ullah Bosal.
- A key driver of this achievement was the Pakistan Banks Association (PBA), which led months of intensive engagement with the 18 banks, Task Force, MoF and SBP. PBA’s leadership helped bridge significant gaps and deliver a workable outcome—building on its earlier role in resolving taxation issues for the sector.
- Equally, the SBP provided crucial regulatory support and alignment throughout. Their active involvement was instrumental in shaping this complex structure into a viable, bankable solution.
- Collective effort of all above brought together energy resilience, fiscal discipline, and financial innovation into a unified solution that delivers both relief and reform.
Sustainability Built In
To prevent further buildup of CD, the government is implementing:
- Enhanced governance and oversight - Technical loss reduction measures - Improved billing and revenue recovery - Privatization and operational restructuring of DISCOs for long-term viability
Turning Point for Pakistan’s Energy Economy
This bold step underscores the government’s resolve for structural reform, market credibility, and relief for both consumers and the budget.
It’s a systemic solution-anchored in firm cash flows, Fund approval, and no added burden on the public.
