ISLAMABAD – In a major financial restructuring move, the federal government is preparing to reduce the circular debt in the power sector from a staggering Rs2.381 trillion to just Rs561 billion, fulfilling a key promise made to the International Monetary Fund (IMF).
According to top officials in the Power Division, the reduction will be achieved by disbursing Rs1,275 billion obtained through loans from 18 commercial banks. The funds will be used by the Central Power Purchase Agency–Guarantee (CPPA-G) to:
Pay off Rs683 billion in loans held by Power Holding Limited (PHL)
Clear Rs569 billion in overdue payments to Independent Power Producers (IPPs)
The move is part of the broader circular debt reduction plan agreed with the IMF and is expected to be executed within this or the coming week.
The Task Force on Power Sector, led by PM’s Adviser Muhammad Ali and Lt General Zafar Iqbal, with experts from NEPRA, SECP, and CPPA-G, played a key role. Notably, the Task Force successfully negotiated a waiver of Rs387 billion in Late Payment Interest (LPI) with IPPs—one of the largest financial concessions in recent times.
In addition, Rs348 billion in arrears were settled (Rs127 billion via budgeted subsidy and Rs221 billion from CPPA-G). A further Rs254 billion was cleared through additional subsidies.
Despite these efforts, Rs561 billion in circular debt will still remain, comprising Rs224 billion in non-interest-bearing and Rs337 billion in interest-bearing liabilities. This balance will be addressed through upcoming power sector reforms and improved Disco efficiency.
The Rs1,275 billion loan will be recovered from electricity consumers via the Debt Service Surcharge (DSS) of Rs3.23 per unit, which is already being collected. Consumers will continue to pay this surcharge for the next six years. While this surcharge has reached the previously set 10% cap, the government—under IMF pressure—has removed this cap, though it does not plan to increase the rate for now.
