Burden of repayment to be borne by consumers of electricity, paying Rs3.23 surcharge per unit on their bills every month, according to sources
PM Shehbaz participates in signing ceremony remotely from New York.
Loan to pay off legacy liabilities, no burden on exchequer.
Step is seen as major to stabilise power sector.
Pakistan will be entering into a Rs1.275 trillion financing arrangement on Wednesday with a group of 18 commercial banks in an attempt to reduce the nation’s runaway circular debt in the power sector, sources have disclosed.
A formal notice released by Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) mentions that the burden of repayment will be imposed on electricity consumers, who are already being charged a surcharge of Rs3.23 per unit on their monthly bills, reported The News.
The signing, said to take place at the Prime Minister’s Office, is a linchpin of Pakistan’s $7 billion International Monetary Fund (IMF) programme, which demands robust energy sector reforms and long-term fiscal prudence. Prime Minister Shehbaz Sharif, who is presently in New York participating in the UN General Assembly session, will participate in the ceremony remotely, underscoring the political significance accorded to the project.
Sources indicated that the financing package will be used to permanently retire legacy debt without burdening the national exchequer. Commercial banks will provide Rs617 billion worth of new loans at a concessional rate of KIBOR minus 0.90 basis points, to be repaid in 24 quarterly instalments of equal amount within six years. The effective interest rate is estimated to fall between 10.50% and 11.5%. The repayment will be made from the available debt service surcharge collected from customers, yielding Rs323 billion a year.
The Rs1.275 trillion facility will pay off the Power Holding Company’s (PHL) liabilities worth Rs683 billion and Independent Power Producers’ (IPPs) arrears worth Rs592 billion. In mid-June 2025, the federal cabinet approved the scheme, terming it a record feat for arranging financing lower than the three-month KIBOR benchmark.
Authorities say the decision will stabilize Pakistan’s weak power sector by relieving liquidity pressures and lowering dependence on emergency budgetary intervention. But since the circular debt stock was Rs1.66 trillion as of the end of July 2025, the task of keeping future build-ups under control is formidable.
The hefty loan facility is designed to sharply lower the nation’s circular debt stock by reducing it from Rs1.614 trillion to a mere Rs339 billion. This comes after months of hard-nosed negotiations and financial restructurings by the government’s Task Force on Power, which has since yielded some sharp drop in circular debt from an all-time high of Rs2.381 trillion at the beginning of this year.
In order to repay the loan in the next six years, a debt service surcharge (DSS) of Rs3.23 per unit has been incorporated into the power tariff. The government officials made it clear that this surcharge is already operational and will stay so for the duration of the repayment period.
Pakistan ‘signs Rs1.275tr financing agreement’ to relieve power debt today
While the DSS had hitherto been capped at 10%, the ceiling has now been removed to meet structural targets under the current IMF programme. But officials stressed that there are no short-term plans to increase the rate of surcharge. The commercial banks will charge the surcharge amount at source while collecting electricity bill payments from consumers.
In contrast to a previous loan of Rs658 billion provided to the power sector under government guarantee, the current financing package does not include a sovereign guarantee. In exchange, the loan is now directly provided to CPPA, secured by the power industry’s huge receivables, a major change in risk-sharing and financial burden. The CPPA Board of Directors has already endorsed the terms based on the negotiations with the participating banks. The government also lowered its originally sought loan amount from Rs1.275 trillion to Rs1.225 trillion after PHL paid off some of its obligations and settled several major payments.
This restructuring exercise was complemented by the cancellation of six underperforming IPP contracts, waivers worth Rs387 billion of late payment interest (LPI), and the payment of Rs348 billion in arrears — Rs127 billion through budgeted subsidies and Rs221 billion by CPPA directly.
Pakistan ‘signs Rs1.275tr financing agreement’ to relieve power debt today
After the Rs1.225 trillion loan is completely disbursed, the remaining circular debt of Rs339 billion is expected to be solved through further reforms and efficiency enhancement in power distribution companies (Discos).
The high-profile signing ceremony will witness the attendance of senior government officials, including Deputy Prime Minister Ishaq Dar, federal ministers for power, finance, economic affairs, petroleum, planning and IT, governor of the State Bank of Pakistan, chairman National Electric Power Regulatory Authority, country heads of IMF, World Bank, and Asian Development Bank.
Chief executives of CPPA-G, PHL, and Discos such as Lesco, Mepco, Pesco, Hesco, etc. will also be there. Senior level representatives from 18 commercial banks engaged, including HBL, NBP, UBL, MCB, Meezan Bank, and Bank Alfalah, will also be present to witness the signing of the agreement.
This strategic financial measure is regarded as a landmark move to reassert fiscal prudence in the power industry, to meet IMF programme obligations, and lay the groundwork for wider energy sector reforms.
