- Premier Shehbaz says circular debt to end in six years under landmark financing facility, aims at saving Rs350b
- Shehbaz stresses ‘courage and confidence,’ saying consortium of 18 banks backs Rs1.225tr financing facility with six-year repayment window
- Claiming retirement of debt service surcharge, IPP settlements, and PHL loan central to power sector reforms
- PM credits task force for tough IPP negotiations, acknowledging ‘vital support’ by Army Chief
ISLAMABAD/NEW YORK: Prime Minister Muhammad Shehbaz Sharif on Thursday unveiled Pakistan’s first-ever comprehensive plan to eliminate energy sector circular debt, terming it a “historic breakthrough” that would not only stabilize the country’s fragile power sector but also deliver savings of Rs350 billion to consumers, according to state media.
Backed by a financing facility of Rs1.225 trillion from a consortium of 18 banks, the landmark initiative aims to clear longstanding liabilities, reduce surcharges, and pave the way for structural reforms.
Speaking at the signing ceremony, the prime minister—who joined via video link from New York—hailed the collective efforts of the government, financial institutions, regulators, and the dedicated task force in negotiating and finalizing the plan, said a statement issued by the Prime Minister’s Office.
Ministers, senior officials, energy regulators, international partners, and CEOs of leading power sector organizations attended the event at the Prime Minister’s House in Islamabad.
“This is the first time in Pakistan’s history that circular debt, which has been swallowing our national resources, is being addressed in a structured and effective manner,” the premier remarked.
The prime minister highlighted the contributions of the Power Division, Petroleum Ministry, and the Task Force, paying special tribute to former caretaker energy minister Mohammad Ali, Secretary Power, and Lieutenant General (R) Muhammad Zafar Iqbal for their “tireless negotiations with Independent Power Producers (IPPs).”
He also acknowledged the role of the financial sector, praising Zafar Masood, President of the Bank of Punjab, along with teams from Meezan Bank, Habib Bank, and other commercial banks for their pivotal support. The State Bank of Pakistan and Federal Board of Revenue (FBR) were also lauded for facilitating the execution of the plan.
PM Shehbaz underscored that the initiative received the “behind-the-scenes support” of Chief of Army Staff Field Marshal Syed Asim Munir, which gave strength to the government’s reform agenda. “This is Team Pakistan’s success,” he emphasized, adding that even the International Monetary Fund (IMF) had acknowledged the reform progress.
“Yesterday, I met the IMF Managing Director, who praised Pakistan’s commitment and speed of implementation. This is unprecedented recognition,” he said.
He urged stakeholders to continue working with “courage and confidence” to resolve energy sector challenges. “Our macroeconomic indicators, business climate, and reforms are receiving international recognition. If we maintain this momentum, Pakistan will surely emerge from its difficulties,” he concluded.
At the signing ceremony, federal ministers for Power and Petroleum, as well as advisers on Privatization, were present. Representatives from COCPPA, Meezan Bank, and Habib Bank formally endorsed the agreement on behalf of the financial sector.
Lieutenant General (R) Zafar Iqbal, head of the Task Force, highlighted the difficult but successful negotiations with IPPs, while senior officials of the Power and Petroleum Divisions emphasized upcoming reforms, including the privatization of distribution companies (DISCOs) and reducing line losses.
Under the Circular Debt Financing Facility, Rs659 billion will be allocated to retire Power Holding Limited (PHL) loans, while the remaining funds will be directed toward payments to Independent Power Producers (IPPs) and Government Power Producers (GPPs) to maximize relief for consumers.
Key features of the package include financing at KIBOR minus 0.9%, a six-year repayment period, and the use of a Debt Service Surcharge (DSS) as the revenue stream. The plan is designed to fully retire the circular debt within six years while preventing future accumulation through structural reforms.
