ISLAMABAD: The federal cabinet has approved a comprehensive financing plan involving a Rs 1.275 trillion loan from commercial banks at historically low interest rates in a landmark move to ‘resolve’ the longstanding issue of circular debt in Pakistan’s power sector.
According to a state-run news agency, APP, the approved plan aims to secure Rs 1.275 trillion from commercial banks at an interest rate 0.9% lower than the historical three-month KIBOR benchmark.
The initiative marks a strategic shift from the previous approach of maintaining a fixed circular debt level, with a focus now on gradually reducing it through structured bank financing.
For the first time, instead of merely managing the stock of circular debt, the government will utilize the borrowed funds to retire dues owed to Independent Power Producers (IPPs) and settle liabilities of the Power Holding Company.
The bank’s loan, scheduled for repayment over six years, is expected to stabilize the sector without placing additional pressure on the national budget.
Out of the total Rs 1.275 trillion, Rs 683 billion will be allocated to clear arrears of the Power Holding Company.
The loan will be repaid in 24 equal installments, with each installment due every three months, and will bear an interest rate set at 0.9% below the prevailing 3-month KIBOR.
An annual repayment cap of Rs 323 billion has been established, with a total ceiling of Rs 1.938 trillion in the event of future interest rate hikes.
