Islamabad – The Federal Power Division Minister Awais Leghari on Friday said that the power sector circular debt will be brought down to Rs389 billion, following Rs1.225 trillion loan facility agreement with various banks, and claimed the debt will be completely wiped out within next six years. “Initially, the power sector circular debt was reduced by Rs780 billion in one year- through various measures- and now with the fresh Rs1.225 trillion financing facility agreements with 18 commercial banks. It will be further slashed to Rs389 billion,” the minister said while addressing a press conference here. He claimed that the government had successfully reduced Pakistan’s power sector circular debt by Rs780 billion within a year from approximately Rs2.4 trillion-during the last one year- to Rs1.614 trillion.
The minister said that circular debt had been reduced to Rs1.614 trillion, and will be further slashed to Rs389 billion, following the payment of Rs1.225 trillion obtained from banks through financing facility agreement. The loans obtained from banks under the financing facility agreement will be cleared within next five to six years. “Within six years, the circular debt will cease to exist,” Awais Leghari said. The surcharge of Rs3.23 per unit being collected from consumers to retire circular debt, he added. This surcharge of Rs3.23 per unit will also end within 5 to 6 years, and the circular debt will be permanently eliminated during the time. Leghari claimed that the government had successfully reduced Pakistan’s power sector circular debt by Rs780 billion within a year.
Leghari said circular debt had become a chronic burden on the economy which swelled from Rs1.1 trillion at the end of the PML-N government in 2018 to Rs2.25 trillion by 2022. “When the current coalition took office, the figure stood at Rs2.4 trillion,” he said. “Through tough reforms and negotiations, we have brought it down to Rs1.64 trillion by June,” he said.
“This includes Rs363 billion in savings from talks with IPPs, Rs242 billion saved from curbing losses, and Rs175 billion in savings due to lower interest rates after the economy began to stabilise,” he said. The government had entered into a landmark agreement with a consortium of 18 banks to restructure Rs1.225 trillion worth of circular debt under more favourable terms. The minister claimed the deal ensured an interest rate saving of 3.5 to 5.5 percent and would eventually wipe out the circular debt within six years. “This is a historic step. The surcharge of Rs3.23 per unit currently being collected from consumers will also end within five to six years instead of the early projected eight to ten years period,” Leghari said. “We have discussed the plan in detail with the IMF, and it has been incorporated into our programme targets. Today again, we spoke to the IMF mission in Islamabad about progress,” he said.
Leghari further said that the debt resolution would strengthen Pakistan’s macroeconomic stability. He said no other economy in the world carried such a recurring burden of circular debt. “By reducing it, we are not only stabilising the energy sector but also creating fiscal space for agriculture, SMEs, housing, education, and health,” he added. The minister said power distribution companies (DISCOs) had also started showing improvement. Their boards are now focusing on reducing losses. He said that industries were receiving electricity at 38 percent lower rates. As many as 18 million domestic consumers which account for around half of the country’s households were benefitting from reduced tariffs.
He further said that solar net-metering tariffs had created a dangerous imbalance, and warned that rates need to be reviewed. If adjusted, it could reduce electricity bills for over 32 million people, Leghari said, adding that reform in this area was necessary to ensure fairness across consumer segments. Leghari said that circular debt would be eliminated “once and for all” through sustained reforms. “Pakistan’s economy depends on its energy sector. By resolving circular debt, we are laying the foundation for long-term growth and stability,” he added. The minister, however, made it clear that the IPPs whose outstanding dues are parked in circular debt- to receive payments- will not charge late payment charges.
