Power Division urges PM Shehbaz to witness Rs1.225trn loan deal

ISLAMABAD: The Power Division has requested Prime Minister Shehbaz Sharif to witness the signing ceremony of agreements with banks for raising Rs 1.225 trillion in loans to partially retire the power sector’s circular debt, which currently stands at about Rs 1.7 trillion, down from Rs 2.5 trillion, well-informed sources told Business Recorder.

According to sources, all codal formalities for the Rs 1.225 trillion financing package have been completed with 18 banks. The boards of Discos, CPPA-G, Power Division, and Finance Division have already cleared the agreements.

“All codal requirements, requisite documents, and guarantees are now in place,” a source confirmed.

Power sector: federal cabinet approves Rs1.275trn bank loan to cut circular debt

Explaining the difference between Rs 1.275 trillion and Rs 1.225 trillion, sources said the Rs 50 billion gap has nothing to do with the Chinese CPEC IPPs’ willingness to waive Late Payment Surcharge (LPS).

“This relates to the quarterly instalment structure. The government capped payments at Rs 310 million per quarter. When this cap is applied to the agreed terms, the total comes to Rs 1.225 trillion at Kibor minus 9 percent over six years. Had the government opted for Rs 325 million per quarter, the total would have risen to Rs 1.275 trillion, but that would have increased the prevalent Debt Servicing Surcharge (DSS) of Rs 3.23/kWh— an option with serious political costs for the government,” the sources explained.

Of the Rs 1.225 trillion, the government must repay Rs 659 billion in loans owed by Power Holding Limited (PHL). However, no decision has been made regarding disbursement of the remaining amount to power producers individually, the petroleum sector, or for subsidy adjustments.

“The Power Division now requires the Prime Minister’s guidance on signing the agreements. Most likely, the ceremony will be held at the Prime Minister’s Office with his participation,” the sources added.

Once agreements are signed, the government will have 30 days to formally request disbursements. Any withdrawal request made to banks will have to be utilised to avoid penalties. After one month the government has three months to draw requested amounts.

“At that stage, the government will test which IPPs—whether local or Chinese—are willing to offer discounts on their outstanding dues. This ‘tester’ could not be applied before the Prime Minister’s visit to China as it might have had a negative impact. Now, with all loan prerequisites completed and the visit over, the government is preparing to move ahead,” the sources maintained. The Power Division will not approach the Cabinet regarding the size of amount to be drawn from banks, but it will seek Cabinet approval on the allocation of funds to individual projects.

The names of banks, which have entered into the agreement with the CPPA-G as Agent of power Distribution Companies are as follows: (i) Meezan Bank Limited; (ii) Habib Bank Limited; (iii) National Bank of Pakistan; (iv) Allied Bank Limited; (v) United Bank Limited; (vi) Faysal Bank Limited; (vii) Bank Al Habib Limited; (viii) MCB Bank Limited; (ix) Bank Alfalah Limited; (x) Dubai Islamic Bank Limited; (xi) The Bank of Punjab; (xii) Bank Islami Pakistan Limited; (xiii) Askari Bank Limited; (xiv) Habib Metropolitan Bank Limited; (xv) Al Baraka Bank Limited; (xvi) Bank of Khyber; (xvii) MCB Islamic and; (xviii) Soneri Bank Limited.

The federal cabinet had approved the following proposals of Power Division with minor amendments in a couple of proposed clauses: (i) CPPA-G had been directed (as agent on behalf of Discos) to perform public service obligations and undertake related activities in relation to circular debt stock financing and settlement in terms of Section 7 (4) read with Schedule II of the SOE Act as per the proposed terms reflected in the indicative term sheet to be executed by CPPA-G for and on behalf of Discos and execute ‘CD Restructuring, Settlement and Subscription Agreement (CDRSSA)’ between the Government of Pakistan, Discos and CPPA-G; (ii) Authorised the Power Division to execute relevant documents as may be required on behalf of the Government of Pakistan per the terms and conditions reflected in the indicative term sheet and to execute the Agreement; (iii) authorised the Power Division to direct Discos to execute relevant instruments and create such security as may be required for the purposes of the financing reflected in the indicative term sheet; (iv) approve the draft amendment in Section 31 (8) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 and the draft legislation be made part of the Finance Bill 2025-26; (v) approved immediate release to CPPA-G and utilisation of Rs. 267 billion, already budgeted and available in Power Division demand no 33 under the head of GoP investment in Discos equity. Rs. 267 billion would be reduced to the extent of the K-Electric TDS utilisation; (vi) approve technical supplementary grant of Rs. 393 billion from Finance Division demand no. 45 to Power Division demand no. 33 to be immediately released to CPPA-G under the head of GoP investment in Discos equity; (vii) authorised CPPA-G to utilise amounts to pay off the negotiated payables of Government-owned Power Plants (GPPs). Excess amount, if any, after payment of GPPs shall be utilised for payment to Uch-I & Uch-II for onward payment to OGDCL; (viii) authorised CPPA-G to utilise part of the proceeds raised under the term sheet to settle and retire the outstanding debt obligations of Rs. 683.253 billion of PHL; (ix) authorised CPPA-G to disburse payments to the respective IPPs from the bank financing subject to waive Late Payment Interest (LPI) by the IPPs; (x) approve the draft amendments in Section 3 (3) of the Sales Tax Act, 1990 and Section 113 (3) (a) of the Income Tax Ordinance, 2001 and the draft legislation be made part of the Finance Bill 2025-26; (xi) the Term Sheet being negotiated is substantially lower than the banking sector benchmark/ interbank profit rates, and to approve the exemption from the bidding under PPRA Rules; and (xii) approve the amendment in Rule-5 of the “Pakistan Energy Sukuk Rules, 2019” as follows “5-Redemption. – The Sukuk shall be redeemable before maturity”.

Copyright Business Recorder, 2025