ISLAMABAD – Pakistan is all set to sign a landmark Rs1.275 trillion financing facility agreement with 18 commercial banks today (Wednesday) for reduction of power sector circular debt. The signing ceremony is scheduled to take place at the Prime Minister’s Office, while PM Shehbaz Sharif will join the ceremony virtually, according to an official invitation by the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G).
The financing facility agreement will be signed with 18 commercial banks to retire a major chunk of the country’s power sector circular debt. As of July 2025, the power sector circular debt stands at Rs1.66 trillion. In June this year, while resorting toward restoring financial sustainability in the power sector, the federal cabinet had approved Pakistan’s largest-ever financial transaction for circular debt (CD) clearance. The financing package is designed to permanently retire legacy debts without burdening the national exchequer.
Under the approved scheme, up to Rs1.275 trillion will be raised through a syndicated facility from all banks of Pakistan to clear circular debt, with a six-year repayment plan, taking the total amount up to Rs1.938 trillion. The loans will be paid by the electricity consumers through surcharges in their bills. The country’s electricity consumers will pay up to Rs1.938 trillion, in surcharges, to fund the government plan of clearing the circular debt of Rs1.275 trillion through bank loans. The consumers are currently being charged Rs3.23 per unit surcharge in their electricity bills. As per the plan, up to Rs1.275 trillion will be raised through a syndicated facility from all leading banks of Pakistan at an unprecedented rate of 3-month KIBOR minus 0.9 percent — a first-of-its-kind below-market transaction of this scale. The financing is structured for a 6-year term. In the next six years, an interest of up to Rs663 billion will be paid on Rs1.275 trillion taking the total amount to Rs1.938 trillion. This transaction, for the first time, provides a banking-based solution to address the CD stock, replacing the previous model where the government bore the burden to sustain the sector. The initiative aims to eliminate upto 1.275 trillion CD stock over the next six years, without creating new fiscal pressures on the national budget. Key features of the transaction include refinancing of Rs683 billion Power Holding Limited (PHL) debt and settlement of Independent Power Producers (IPP) arrears. Facility size up to Rs1,275 billion, tenure 6 years (24 quarterly installments and Prepayment allowed), pricing 3 months KIBOR – 0.9 percent (historic sub-market rate) and annual repayment cap of Rs323 billion per year (total Rs 1.938 trillion).
