ISLAMABAD: The Power Division has reportedly put its USD36 billion power sector circular debt refinancing plan on ice, as neither international financial institutions (IFIs) nor Saudi Arabia are in a position to extend funding under the current circumstances, well-informed sources in the power sector told Business Recorder.
The Power Division had shared its plan with IFIs and Saudi Arabia to secure loans worth $36 billion over 13 years, starting from FY2027, to refinance the power sector’s debt servicing burden.
The objective was to reduce electricity tariffs, particularly for the industrial sector. In December 2025, Power Division had also shared its circular debt refinancing plan with the Prime Minister, Shehbaz Sharif.
According to sources, the proposed interest rate under discussion with IFIs, including the World Bank and Asian Development Bank, was around 2 percent, while financing from Saudi Arabia was being explored at a lower rate of 1 percent.
READ MORE: Circular debt stock stands at Rs1.8trn as of Feb 2026: PD
Under the now-shelved plan, the proposed annual refinancing amounts were: USD4.40 billion in FY2027; USD4.18 billion in FY2028; USD4.44 billion in FY2029; USD3.97 billion in FY2030; USD3.19 billion in FY2031; USD3.22 billion in FY2032; USD2.91 billion in FY2033; USD2.52 billion in FY2034; USD2.22 billion in FY2035; USD1.40 billion in FY2036; USD1.36 billion in FY2037; USD1.28 billion in FY2038; and USD1.21 billion in FY2039.
Currently, the power sector’s circular debt stands at around Rs 1.9 trillion. However, the government aims to contain it at Rs 1.614 trillion by June 30, 2026. The government has already raised Rs 1.225 trillion from commercial banks to reduce circular debt and has decided to continue the recovery of the Debt Service Charge at Rs 3.23 per kWh for the next six years in an effort to bring the stock down to zero.
According to the proposed plan, if borrowing were arranged from IFIs at 2 percent interest, industrial tariffs were projected to decline to 8.70 cents/kWh in FY2027, 8.48 cents in FY2028, 8.23 cents in FY2029, 8.34 cents in FY2030, 8.66 cents in FY2031, 8.56 cents in FY2032, 8.72 cents in FY2033, 9.08 cents in FY2034, 9.18 cents in FY2035, 9.59 cents in FY2036, 9.46 cents in FY2037, 9.34 cents in FY2038, and 9.18 cents in FY2039.
Alternatively, if financing were secured from Saudi Arabia at 1 percent interest, industrial tariffs were projected to be slightly lower: 8.62 cents/kWh in FY2027, 8.34 cents in FY2028, 8.02 cents in FY2029, 8.12 cents in FY2030, 8.45 cents in FY2031, 8.35 cents in FY2032, 8.52 cents in FY2033, 8.88 cents in FY2034, 8.99 cents in FY2035, 9.42 cents in FY2036, 9.30 cents in FY2037, 9.18 cents in FY2038, and 9.03 cents in FY2039.
“IFIs have exposure limits for each country. They maintain that if the Government of Pakistan wishes to reprioritise its concessional financing needs, it may do so, but at present no institution is in a position to provide financing on the proposed terms,” the sources said, adding that IFIs could offer funding at higher interest rates, which Pakistan is reluctant to accept.
Responding to a question regarding Saudi Arabia’s position, the sources said that no formal response has yet been received. They added that Saudi Arabia is currently preoccupied with the evolving situation in the Middle East.
Copyright Business Recorder, 2026
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