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Business Recorder
23-06-2025
- Business
- Business Recorder
Debt shift, not debt reform
The government has finally laid out the numbers behind what it calls a 'power sector reform milestone.' At the heart of the plan is the promise to clear Rs2.4 trillion in circular debt (CD) stock, a long-standing source of fiscal haemorrhage and economic distortion. One might assume this announcement heralds structural correction, long-term efficiency, and consumer relief. But the details tell a different story. A large part of this so-called reform involves borrowing Rs1.25 trillion from commercial banks to retire existing Power Holding Limited (PHL) loans and clear residual interest-bearing arrears owed to power producers. This new debt is to be repaid over six years through 24 equal quarterly instalments, totalling Rs1.938 trillion. Now here's the kicker: the government claims that this facility is secured at three-month KIBOR minus 0.9 percent, as agreed with the IMF. This rate today equates to roughly 10.1 percent per annum. But the math simply does not add up. A Rs1.275 trillion loan repaid in Rs1.938 trillion over six years implies an effective annual interest rate of around 17.2 percent, assuming standard amortization. That is a full seven percentage points higher than the stated concessional rate. Unless the loan was locked in when KIBOR was at 18 percent - or is structured with heavily back-loaded payments or embedded escalators - there is a clear credibility gap between what is being claimed and what is being paid. The government needs to explain this gap. Was KIBOR frozen at the time of agreement? Are there compounding mechanics hidden under the hood of the Islamic finance structure? Is the 'KIBOR minus 0.9%' a red herring for a far more expensive reality? Worryingly, this is not just about opaque pricing. It is about who foots the bill. Because the loan will be repaid not by the fiscal budget, but by consumers, through the Debt Service Surcharge (DSS) on electricity bills, which have been set at 10 percent of Nepra's determined revenue requirement and now set to become uncapped. If the DSS collection falls short, it will be raised. If projections show a future shortfall, it will be pre-emptively raised. That is not reform. That is shifting the entire burden of past mis governance, theft, non-recovery, and political expediency onto paying consumers. For six straight years. This is not the retirement of circular debt. This is its refinancing and repackaging as consumer debt, backed by law, buried in your electricity bill, and enforced by NEPRA. It solves none of the underlying inefficiencies: transmission losses, governance failures, unchecked subsidies, DISCO mismanagement, which created the CD crisis to begin with. This plan may look clean on government balance sheets and help Pakistan check boxes on the IMF's program matrix. But from the perspective of the average paying consumer — the very same who already bears the weight of capacity charges, taxes, and losses — this is nothing short of an institutionalized penalty. A reform that raises no efficiency, cleans no value chain, and punishes compliance is not is a relabelling exercise: expensive, regressive, and deeply unfair. Copyright Business Recorder, 2025
Express Tribune
20-06-2025
- Business
- Express Tribune
Rs1.275tr loans signed to ease circular debt
Pakistan has signed term sheets with 18 commercial banks for a Rs1.275 trillion ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning "circular debt", unpaid bills and subsidies, that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. "Eighteen commercial banks will provide the loans through Islamic financing," Khurram Schehzad, adviser to the finance minister, told Reuters. The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR, the benchmark rate banks use to price loans, minus 0.9%, a formula agreed on by the IMF. "It will be repaid in 24 quarterly instalments over six years," and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks participating in the deal. The government expects to allocate Rs323 billion annually to repay the loan, capped at 1.938 trillion rupees over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Express Tribune
20-06-2025
- Business
- Express Tribune
Govt secures Rs1.275tr to address power sector debt
Listen to article The government has signed term sheets with 18 commercial banks for a Rs1.275 trillion ($4.5 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning "circular debt"—unpaid bills and subsidies—that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment, and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. Read More: Pakistan signs '$1b' loan facility "Eighteen commercial banks will provide the loans through Islamic financing," Khurram Schehzad, adviser to the finance minister, told Reuters. The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR (the benchmark rate banks use to price loans) minus 0.9%, a formula agreed on by the IMF. "It will be repaid in 24 quarterly instalments over six years," and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Also Read: Banking sector expands 15.8% in 2024 Meezan Bank, HBL, National Bank of Pakistan, and UBL were among the banks participating in the deal. The government expects to allocate Rs323 billion annually to repay the loan, capped at Rs1.938 trillion over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Business Recorder
20-06-2025
- Business
- Business Recorder
Pakistan signs $4.5bn loans with local banks to ease power sector debt
KARACHI: Pakistan has signed term sheets with 18 commercial banks for a 1.275 trillion Pakistani rupee ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning 'circular debt', unpaid bills and subsidies, that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. 'Eighteen commercial banks will provide the loans through Islamic financing,' Khurram Schehzad, adviser to the finance minister, told Reuters. Power sector circular debt plan okayed by Cabinet The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR, the benchmark rate banks use to price loans, minus 0.9%, a formula agreed on by the IMF. 'It will be repaid in 24 quarterly instalments over six years,' and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks participating in the deal. The government expects to allocate 323 billion rupees annually to repay the loan, capped at 1.938 trillion rupees over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Business Recorder
19-06-2025
- Business
- Business Recorder
Rs1.275trn loan deal finalised with banks
ISLAMABAD: The Federal Cabinet on Wednesday approved a long-anticipated agreement between the Government of Pakistan (GoP) and approximately 18 commercial banks for a landmark Rs 1.275 trillion loan, following intense negotiations over each clause. Sources in Power Division told Business Recorder, the loan aims to address a portion of the country's ballooning circular debt, currently estimated at around Rs 2.4 trillion. The International Monetary Fund (IMF) has already endorsed the government's circular debt reduction plan, which includes borrowing from commercial banks. Of the total circular debt, about Rs 700 billion is already carried on the books of the Power Holding Company Limited (PHL), on behalf of the power distribution companies (Discos). Rs1.275trn loan to tackle circular debt: CPPA-G likely to sign term sheets with 18 banks Under the agreement, commercial banks will provide fresh loans amounting to Rs 683 billion at an interest rate of 10.5%–11%, pegged to the Karachi Inter-bank Offered Rate (KIBOR) minus 0.90 basis points. Repayment will be made over six years via the Debt Service Surcharge (DSS), which is currently charged to electricity consumers at Rs 3.23 per unit. Notably, this mechanism ensures there will be no additional burden on the national treasury. According to the approved plan, the Rs 683 billion in financing will be used to clear PHL's outstanding liabilities. Repayment will occur in 24 semi-annual installments, with an annual ceiling of Rs 323 billion. In the event of rising interest rates, the total repayment cap has been set at Rs 1.938 trillion. Earlier reports suggested that banks had requested a guarantee from the State Bank of Pakistan in case the government defaulted. Sources familiar with the negotiations revealed that government representatives reminded the banks of the potential risks to their investments should the power sector collapse—an implicit warning aimed at expediting the deal. However, an official denied that any threats were made, stating that banks were simply asked to appreciate the seriousness of the situation. In response to concerns about delays in finalizing the term sheets, one key stakeholder dismissed such claims. 'There's no delay—we're just ironing out final details. This is a massive, unprecedented transaction in Pakistan, so it's natural that many elements require careful attention,' the official said. Official documents confirm that the government has committed to the IMF to borrow Rs 1.252 trillion from banks—Rs 683 billion to settle existing PHL loans, and Rs 569 billion to clear remaining interest-bearing arrears owed to power producers. Copyright Business Recorder, 2025
