Circular debt ‘package’: Govt to sign Rs1.225trn pact with 18 banks today

ISLAMABAD: The government of Pakistan and a consortium of 18 banks are set to sign a long-awaited Rs1.225 trillion financing facility agreement on Wednesday (Sept 24) to address the circular debt crisis in the power sector.

Prime Minister Shehbaz Sharif, currently in New York, will witness the signing ceremony virtually, which is scheduled to take place at the Prime Minister’s Office in Islamabad.

“All required documentation has been finalized for the agreement,” an official confirmed while talking to Business Recorder.

Pakistan’s power circular debt clocks in at Rs1.66tn

Under the arrangement, the government will have 30 days after the signing to request disbursements, which must be promptly utilized to avoid penalties. Any withdrawal request not fully used within the period will lapse, though a further three months will be available to draw on approved amounts.

According to sources, the government considered allowing a Debt Service Support (DSS) of Rs325 million per quarter, which would have increased the total facility to Rs1.275 trillion. However, it opted to maintain the current power tariff adjustment of Rs3.23 per unit. Chief Executive Officer of CPPA-G, Rihan Akhtar, on behalf of the Ministry of Energy (Power Division), has officially invited stakeholders to the ceremony. The Prime Minister will participate virtually to mark the significance of the event.

According to the letter, Prime Minister of Pakistan will grace the ceremony through his esteemed virtual presence. He has invited the senior representatives of Habib Bank Limited, Meezan Bank Limited, National Bank of Pakistan, Allied Bank Limited, United Bank Limited, Faysal Bank Limited, Bank AL Habib Limited , MCB Bank Limited, Bank Alfalah Limited, Dubai Islamic Bank Pakistan Limited , The Bank of Punjab, BankIslami Pakistan Limited, Askari Bank Limited, Habib Metropolitan Bank Limited, Al Baraka Bank (Pakistan) Limited, Bank of Khyber, Islamic, MCB Islamic Bank Limited and Soneri Bank Limited.

Other government’s key personalities which have been invited are Deputy Prime Minister, ministers of power, finance, EAD, petroleum, planning, information and broadcasting, information technology, Advisor to Prime Minister on Privatization, Governor of the State Bank of Pakistan, National Coordinator Task Force on Power, National Coordinator on SIFC, Chairman NEPRA, secretaries of power, finance, planning, petroleum, information & broadcasting, country director World bank, ADB and IMF mission head at Islamabad, Additional Secretary 1&II Power Division, all members of Task Force on power and spokesperson for the Power Division.

Chief executive officers of CPPA-G, PHL, NPGCL, LESCO, PESCO, SEPCO, HESCO, QESCO and TESCO have also been invited. The package, finalized with 18 banks, is aimed at partially retiring the power sector’s circular debt, which now stands at around Rs 1.7 trillion, reduced from Rs 2.5 trillion. Of the Rs 1.225 trillion, Rs 659 billion will be used to repay loans previously obtained by Power Holding Limited (PHL). The utilization of the remaining funds — whether for payments to independent power producers (IPPs), the petroleum sector, or subsidy adjustments — remains undecided.

While the loan package provides temporary breathing space, the underlying debt challenge persists, with repayments locked in for six years at Kibor minus 9 percent. Critics note that the arrangement highlights the deepening reliance on domestic banks to plug systemic gaps in the energy sector.

Copyright Business Recorder, 2025