In a major step to revive the energy sector, the government will reduce Pakistan’s circular debt from Rs2.3 trillion to Rs561 billion. This debt cut comes after securing Rs1,275 billion from 18 commercial banks and fulfills a key agreement made with the International Monetary Fund (IMF). Officials plan to disburse the funds within this or next week to ease the burden on the power sector.
According to sources, the Central Power Purchase Agency-G (CPPA-G) will use the loan to repay Rs683 billion in Power Holding Limited (PHL) loans. It will also clear Rs569 billion in interest-based arrears owed to independent power producers (IPPs). Once payments are made, the circular debt figure will drop significantly and be officially updated on the Power Division website.
Moreover, a special Task Force, including Adviser to PM Muhammad Ali and other top officials from SECP, Nepra, and CPPA-G, played a vital role. Through negotiations with IPPs, they managed to waive off Rs387 billion in late payment interest and cleared Rs348 billion through subsidies and payments.
Even after the reduction, Rs561 billion will remain as circular debt, but officials aim to tackle this through better efficiency and reforms in distribution companies (Discos). The remaining liabilities include both interest and non-interest-bearing loans, which will require long-term planning to manage effectively.
Meanwhile, consumers will repay the Rs1,275 billion loan over the next six years via an existing surcharge of Rs3.23 per unit on electricity bills. Authorities confirm that no new surcharge will be added, and the rate has already reached the 10% cap, which the IMF has now asked to remove.
This move is expected to bring financial relief to the power sector, improve energy supply reliability, and restore confidence in Pakistan’s commitment to energy reforms and international financial obligations.