Govt Finalizes Rs. 1.2 Trillion Loan With 18 Banks to Pay Off Circular Debt

The federal government has finalized a Rs. 1.275 trillion loan agreement with 18 commercial banks to reduce the power sector’s Rs. 2.3 trillion circular debt, top sources told ProPakistani. Draft agreements are ready and await federal cabinet approval. The Central Power Purchasing Agency Guarantee Limited (CPPA-G) is expected to sign the term sheets this week. The International Monetary Fund (IMF) has endorsed this deal. The deal includes Rs. 617 billion in fresh loans at KIBOR -0.2 percent (effective rate: 10.5–11 percent), repayable over six years through the Debt Service Surcharge (DSS), currently charged at Rs. 3.23 per unit in electricity bills. To enable full repayment, the government plans a legal amendment to remove the current 10 percent revenue cap on the DSS. This change will allow repayment of Rs. 683 billion in Power Holding Company Limited (PHL) loans and Rs. 569 billion in interest-bearing dues to power producers. Banks initially sought guarantees from the State Bank of Pakistan. Officials rejected the demand but warned of systemic risk if the power sector failed. Officials denied coercion, calling it a “reality check.” Sources further revealed that term sheets were signed last week. Cabinet and CPPA-G board approvals are expected next week. Loan disbursement is planned before month-end to reflect reduced debt in the upcoming budget. The agreement is expected to be presented to the cabinet before Eid. This is Pakistan’s largest-ever syndicated loan for the power sector and is being secured at better terms than previous borrowings. Sources added that loan disbursements are planned before the budget to reflect a lower circular debt figure in official documents.