Islamabad: In a major development aimed at stabilizing Pakistan’s troubled power sector, the federal government has secured a Rs1.27 trillion loan from a consortium of 15 commercial banks to tackle the growing circular debt, which has surged to Rs2.53 trillion.
Sources indicate that the formal agreement is expected to be signed within the next 48 hours. The loan has been arranged on concessional terms, with banks agreeing to a markup rate 0.9% lower than the prevailing market rate—bringing it down to 11.4% from the current average of 12%.
Habib Bank is reportedly leading the consortium, and the loan proceeds will be channeled through the Power Holding Company to the Central Power Purchasing Agency (CPPA). The financing facility spans five years, with an option for extension.
The initiative is primarily aimed at halting the further build-up of circular debt, particularly the interest component, which alone has reached Rs683 billion. Presently, power consumers are covering this interest through a surcharge of Rs3.23 per unit. Under the new arrangement, officials say this surcharge will gradually be phased out as the principal amount is repaid.
In addition to the loan, the government will inject Rs111 billion into the Power Holding Company from its own budget. Simultaneously, improved efficiency measures—including reduction in distribution company (Disco) losses and line losses—are projected to save another Rs190 billion.
Once the loan is disbursed and restructuring measures take effect, authorities expect the circular debt to shrink significantly, reducing the stock to around Rs300 billion. This move is seen as a critical step toward restoring financial viability in the power sector and easing the burden on consumers.
