In an effort to tackle the country’s Rs2.381 trillion circular debt, government officials are in discussions with banks to finalize the term sheet for borrowing Rs1,240 billion, The News reported on Monday. According to top officials familiar with the matter, the discount rate has dropped from 22% to 12%. “Further reductions are expected in the coming months, and authorities aim to capitalize on this by securing Rs1.242 trillion in borrowing,” said an official. Talks are underway with banks to finalize the term sheet before the arrival of the International Monetary Fund (IMF) mission. This development coincides with two upcoming IMF missions to Pakistan. The first will focus on climate finance discussions, while the second will conduct the initial review of Pakistan’s progress under the $7 billion Extended Fund Facility (EFF). Elaborating on the ongoing negotiations, the official confirmed that both the State Bank of Pakistan (SBP) governor and the finance minister are involved. The government aims to secure the Rs1,240 billion loan at an interest rate of 6-7% for seven years, while banks are proposing a KIBOR+1 rate. “Once the term sheet is finalized, the government will secure the loan for seven years, with repayments funded through the existing Rs3.23 per unit debt servicing surcharge in electricity tariffs,” the official stated. Of the Rs2.4 trillion circular debt, around Rs720 billion has already been settled through payments to six independent power producers (IPPs) whose contracts were terminated, and 15 IPPs that shifted to the “take-and-pay” model. Authorities have settled Rs450 billion with IPPs—Rs300 billion has been paid, while Rs150 billion in late payment surcharges has been waived. Additionally, Rs286 billion in dues to WAPDA has been settled without interest payments. Resolving the circular debt is expected to ease pressure on the power sector, which is being opened to private investment, with plans for the privatization of distribution companies (Discos), the official added. As per the latest data (November 2024), Pakistan’s circular debt in the power sector declined slightly by Rs12 billion, standing at Rs2,381 billion during July-November FY25, compared to Rs2,393 billion in June 2024. However, losses due to Discos’ inefficiencies and under-recoveries amounted to Rs170 billion—Rs94 billion from inefficiencies and Rs76 billion from under-recovery. Outstanding payables to power producers reached Rs1.608 trillion, while loans parked in the Power Holding Private Company (PHPL) stood at Rs683 billion. Meanwhile, generation companies (Gencos) owed Rs90 billion to fuel suppliers in the first five months of the fiscal year. Data also indicates that Rs5 billion in budgeted subsidies remained unreleased, while PHPL loan interest payments and IPP settlements amounted to Rs70 billion. Additionally, pending generation costs under Quarterly Tariff Adjustments (QTA) and Fuel Charges Adjustments (FCA) stood at Rs31 billion, with K-Electric owing Rs11 billion to the Central Power Purchasing Agency (CPPA), as per the Power Division’s latest report.