Skip to main content

Rs1.2tr bank loan secured to settle circular debt

ISLAMABAD: The government on Wednesday signed loan facilities worth approximately Rs1.225 trillion with 18 banks to settle the outstanding dues of Independent Power Producers (IPPs) parked in circular debt. These dues will be serviced through a Rs3.23 per unit surcharge on consumers for a period of six years.

The signing ceremony was held at the PM Office, witnessed virtually by the prime minister from New York. No official announcement was made, although ministers confirmed the signing of the agreement. Under the agreement, the government will have 30 days to request disbursements from banks for prompt utilisation to avoid penalties.

Any withdrawal request not fully used within the period will lapse. After the request is made, the government will have three months to draw down the approved funds.

The servicing of the Rs1.225tr debt would be serviced through a Debt Service Surcharge (DSS) at the rate of Rs3.23 per unit. Of this, Rs659bn would be used for loans payable by Power Holding Ltd (PHL) – a shell subsidiary of the Power Division. The remaining funds would be used to pay dues to IPPs, petroleum sector entities, and make subsidy adjustments, including through book adjustments and cash settlements.

The Ministry of Finance facilitated the loan agreements with 18 banks, including Habib Bank, Meezan Bank, National Bank of Pakistan, Allied Bank Ltd, United Bank Ltd, Faysal Bank Ltd, Bank Al Habib Ltd, MCB Bank Ltd, Bank Alfalah, Dubai Islamic Bank, Bank of Punjab, BankIslami Pakistan, Askari Bank Ltd, Habib Metropolitan Bank, Al Baraka Bank Ltd, Bank of Khyber, MCB Islamic Bank and Soneri Bank.

Electricity consumers to bear Rs3.23 per unit surcharge for six more years

The cabinet had already approved the loan facility and the payment structure, under which the Central Power Purchasing Agency (CPPA) was designated as the agent on behalf of the distribution companies (Discos) to perform public service obligations and steps for circular debt stock financing and settlement under the SOE Act.

The term sheets with banks were finalised under the guidance of the Ministry of Finance and the State Bank of Pakistan, under which loans would entail Kibor minus 9pc for six years, and repayments would range between Rs310-315bn per quarter, based on estimated Rs3.23 per unit DSS recoveries from consumers.

The DSS already in place for five years under previous loans was to expire by the end of June 2025, but would be continued for the next six years. The total interest on the loan facility has been estimated at approximately Rs640bn.

For this, amendments to Section 31(8) of the Nepra Act were made part of the Finance Bill 2025-26 for DSS, which also removed a cap of 10pc of the base tariff. The power sector’s circular debt currently stands at around Rs1.661 trillion as of the end of July 2025, with a Rs47bn jump in July alone. It was brought down to Rs2.393tr by the end of June through the utilisation of Rs780bn fiscal space on account of subsidy allocations.

Over the past weeks, the Washington-based Institute of International Finance (IIF) and the Federation of Pakistan Chambers of Commerce and Industry termed the loans and fiscal injections as unsustainable without deep-rooted structural reforms to reduce system losses and improve recoveries, besides addressing other inefficiencies.

Amid little reform and a stock of over Rs4.6tr circular debt, Pakistan’s energy sector continues to weigh heavily on its economy across all sectors, owing to weak collections, theft, poor infrastructure, governance problems, and market inefficiencies.

“Taken together, there is about 4pc of GDP worth of debt stemming from the energy sector. The repercussion of this debt reverberates throughout the economy, not only impacting the fiscal but also growth, inflation, the external balance, and the financial sector”, observed Washington-based Institute of International Finance (IIF).

It said circular debt and energy subsidies added significant pressure to public finances, contributing to persistent fiscal imbalances and forcing the government to allocate resources away from other investments, social programmes, and infrastructure projects, and crowding out the private sector.

Published in Dawn, September 25th, 2025



from Dawn - Home https://ift.tt/ATUcBVH
Labels:

Comments

Post a Comment

Popular posts from this blog

Pakistan flag installed at UNSC as country becomes non-permanent member for 8th time

The Pakistani national flag was installed in front of the United Nations Security Council chamber, as the country began its eighth term as a non-permanent member (2025-26) of the 15-member body, according to a press release issued by the Permanent Mission of Pakistan to the United Nations on Thursday. Pakistan on Wednesday began a two-year term as a non-permanent member of the United Nations Security Council (UNSC). Elected in June to replace Japan, Pakistan now occupies one of the two Asia-Pacific seats on the UNSC. It will preside over the council in July, a key opportunity to set the agenda and foster dialogue. View this post on Instagram This marks Pakistan’s eighth term on the council, providing an opportunity to shape discussions on pivotal international issues, but also posing significant challenges. “As part of the joining ceremony, flags of the five new incoming non-permanent members — Pakistan, Denmark, Greece, Panam...
Post a Comment
Read more

Dodgers’ Shohei Ohtani skipping home run derby

Baseball’s biggest star is skipping the home run derby. Shohei Ohtani confirmed after Tuesday’s win over the Diamondbacks that he will not be participating as he continues to rehab an elbow injury that has prevented him from pitching this season. “There’s been some conversations going on,” Ohtani said, according to Juan Toribio of MLB.com . “I’m in the middle of my rehab progression, so it’s not going to look like I’ll be participating.” Manager Dave Roberts said Ohtani and the club reached the decision together. Ohtani signed a historic 10-year, $700-million contract with the Dodgers after winning his second AL MVP award last season with the Angels. Despite his elbow injury, he has served as the Dodgers’ primary DH this season and been one of the most productive hitters in baseball. Ohtani entered Tuesday hitting .316/.399/.635 with a 1.034 OPS. He hit his NL-leading 27th home run in the win. Ohtani had previously participated in the Derby in 2021. Last season’s champion, Vlad...
Post a Comment
Read more

Heathrow resumes operations as global airlines scramble after shutdown

London’s Heathrow Airport resumed full operations on Saturday, a day after a fire knocked out its power supply and shut Europe’s busiest airport, causing global travel chaos. The travel industry was scrambling to reroute passengers and fix battered airline schedules after the huge fire at an electrical substation serving the airport. Some flights had resumed on Friday evening, but the shuttering of the world’s fifth-busiest airport for most of the day left tens of thousands searching for scarce hotel rooms and replacement seats while airlines tried to return jets and crew to bases. Teams were working across the airport to support passengers affected by the outage, a Heathrow spokesperson said in an emailed statement. “We have hundreds of additional colleagues on hand in our terminals and we have added flights to today’s schedule to facilitate an extra 10,000 passengers travelling through the airport,” the spokesperson said. The travel industry, facing the prospect of a financial ...
Post a Comment
Read more