ECC approves Rs659.65bn govt guarantee for circular debt financing

The Economic Coordination Committee (ECC) approved on Friday a summary by the Power Division for issuance of a Government of Pakistan guarantee amounting to Rs659.646 billion for circular debt financing of Rs1.225 trillion.

The guarantee was intended for the settlement of Power Holding Limited’s (PHL) debt and overdue payments to Independent Power Producers (IPPs), the Finance Division said.

The ECC also authorised the Finance Division to issue a Letter of Comfort accordingly.

It directed the Power Division to submit a report on the timeframe for the closure of PHL following the settlement of debt issue.

The decision was taken in the ECC meeting held under the chairmanship of Finance Minister Muhammad Aurangzeb.

During the meeting, the ECC took up another summary submitted by the Power Division regarding the rationalisation of tariffs and payment adjustments for nuclear power plants (NPPs), Government-owned Power Plants (GPPs), the Oil & Gas Development Company Limited (OGDCL), and the Sui Northern Gas Pipelines Limited (SNGPL).

“The proposal formulated through the Prime Minister’s Task Force on Power Sector Reforms, aims to enhance financial sustainability, streamline payments, and reduce overall costs in the power sector.

“The committee endorsed the agreed framework among the concerned entities for the settlement of outstanding dues and waiver of specific financial claims to support fiscal balance and tariff rationalisation. These measures are part of the government’s broader efforts to strengthen the financial health of the energy sector and ensure long-term cost efficiency,” the Finance Division said.

Earlier this week, a Power Division spokesperson said the Rs79 billion increase in the circular debt during the first quarter of the fiscal year (FY) 2025-26 was “attributable to seasonal and operational factors”.

The circular debt refers to a chain of unpaid bills and financial obligations that accumulate within the energy sector.

The spokesperson said the increase of Rs79 billion “must be viewed in full context”.

“During the same quarter last year, circular debt had increased by Rs73 billion; however, by the end of that fiscal year, the overall stock of circular debt was reduced by Rs780 billion.

“The current quarterly rise is therefore attributable to seasonal and operational factors that typically influence monthly flows and are expected to reverse over the course of the year,” they said.

In late September this year, Power minister Awais Leghari said the circular debt would be brought down to zero in the next six years. The circular debt had been brought down to Rs899 billion from approximately Rs2.4 trillion, he informed then in a video message.

Pakistan’s power sector circular debt stood at Rs1.66 trillion in July 2025, declining sharply by 29.3% from Rs2.35 trillion in July 2024, according to data compiled by Arif Habib Limited (AHL).