PM Shehbaz Likely to Witness Signing of Rs. 1.225 Trillion Power Sector Loan Deal

The Power Division has sought Prime Minister Shehbaz Sharif’s presence at a high-profile signing ceremony for agreements with 18 banks to secure a Rs. 1.225 trillion financing package aimed at partially addressing the power sector’s circular debt. The debt, which once stood at Rs 2.5 trillion, has been reduced to approximately Rs. 1.7 trillion, but remains a significant challenge for the government. According to Business Recorder, all formalities for the financing package have been completed. The boards of power distribution companies (Discos), the Central Power Purchasing Agency-Guarantee (CPPA-G), the Power Division, and the Finance Division have already approved the agreements. All codal requirements, requisite documents, and guarantees are now in place. The federal cabinet had earlier approved the Rs. 1.225 trillion financing package, which is slightly lower than the initially proposed Rs 1.275 trillion. Sources explained that the Rs. 50 billion difference stems from the government’s decision to cap quarterly payments at Rs. 310 million, rather than Rs. 325 million. This adjustment was made to avoid increasing the Debt Servicing Surcharge (DSS) of Rs 3.23 per kilowatt-hour, a move that could have carried significant political repercussions. Of the total financing, Rs. 659 billion will be used to repay loans owed by Power Holding Limited (PHL). However, the government has yet to decide how the remaining funds will be allocated among power producers, the petroleum sector, or for subsidy adjustments. The Power Division is now seeking the Prime Minister’s guidance on finalizing the agreements, with the signing ceremony expected to take place at the Prime Minister’s Office. Once the agreements are signed, the government will have 30 days to formally request disbursements from the banks. Any withdrawal request must be utilized promptly to avoid penalties. After the initial 30-day period, the government will have an additional three months to draw the requested amounts. During this time, the government plans to test the willingness of independent power producers (IPPs), both local and Chinese, to offer discounts on their outstanding dues. This step was deliberately delayed until after the Prime Minister’s recent visit to China to avoid any potential diplomatic fallout. The financing package involves agreements with 18 banks, including Meezan Bank, Habib Bank, National Bank of Pakistan, Allied Bank, United Bank, Faysal Bank, Bank Al Habib, MCB Bank, Bank Alfalah, Dubai Islamic Bank, The Bank of Punjab, Bank Islami Pakistan, Askari Bank, Habib Metropolitan Bank, Al Baraka Bank, Bank of Khyber, MCB Islamic, and Soneri Bank. These banks have entered into agreements with CPPA-G, acting as the agent for Discos. The federal cabinet has also approved several related measures to facilitate the financing package. These include authorizing CPPA-G to perform public service obligations, execute agreements, and create necessary securities on behalf of Discos. Additionally, the cabinet approved amendments to key legislation, including the Regulation of Generation, Transmission, and Distribution of Electric Power Act, 1997, and the Sales Tax Act, 1990, which will be incorporated into the Finance Bill 2025-26. The government has also approved the immediate release of Rs. 267 billion, already budgeted under the Power Division’s demand, to CPPA-G for equity investment in Discos. A further Rs. 393 billion will be released as a technical supplementary grant. These funds will be used to settle payables to government-owned power plants and other entities, including Uch-I and Uch-II, for onward payments to the Oil and Gas Development Company Limited (OGDCL). The cabinet has also authorized CPPA-G to utilize part of the financing proceeds to retire Rs. 683.253 billion in outstanding debt obligations of PHL. Payments to IPPs will be contingent on their agreement to waive late payment interest. Furthermore, the cabinet approved exemptions from bidding under the Public Procurement Regulatory Authority (PPRA) rules for the financing package, as the negotiated terms are significantly lower than prevailing interbank profit rates. The government’s efforts to address the circular debt crisis also include amendments to the Pakistan Energy Sukuk Rules, 2019, allowing for early redemption of sukuk before maturity.