Govt Trying to Get Huge Bank Loan to Pay Off Circular Debt

The federal government is trying to negotiate with banks for a Rs. 1.24 trillion loan agreement to reduce the Rs. 2.381 trillion circular debt. Authorities want to take advantage of the declining discount rate which has dropped from 22 percent to 12 percent. They want the loan at a 6-7 percent interest rate for seven years, but banks are proposing a KIBOR+1 rate, reported a News Daily. The borrowed funds will be repaid through the existing Rs. 3.23 per unit debt servicing surcharge on electricity tariffs. The government has already settled Rs. 720 billion of the circular debt, including Rs. 450 billion paid to Independent Power Producers (IPPs) and Rs. 286 billion to WAPDA. The government believes resolving the circular debt will facilitate the privatization of power distribution companies (DISCOs). As of November 2024, circular debt slightly declined to Rs. 2.381 trillion from Rs. 2.393 trillion in June. Payables to power producers stood at Rs. 1.608 trillion and Rs. 683 billion remained parked in the Power Holding Private Company (PHPL). Pending subsidies stood at Rs. 5 billion. An amount of Rs. 70 billion was spent on interest charges and payments to IPPs, while Rs. 31 billion remained pending under quarterly and fuel charge adjustments.