Pakistan has initiated discussions with international lenders and Saudi Arabia to secure approximately $36 billion in long-term financing aimed at refinancing the country’s power sector debt servicing obligations, according to a report by Business Recorder citing official sources. The proposed financing, expected to span 13 years starting from fiscal year 2026–27 (FY27), is part of a broader strategy to reduce electricity tariffs, particularly for the industrial sector, and to ease persistent financial pressure within the power sector.
Officials familiar with the matter said negotiations are currently underway with major International Financial Institutions, including the World Bank and the Asian Development Bank. The indicative interest rate being discussed with these lenders is around 2%. At the same time, Pakistan is holding parallel talks with Saudi Arabia, where the focus is on securing financing at a comparatively lower interest rate of around 1%. The government views these discussions as critical to restructuring its power sector liabilities and improving the competitiveness of domestic industry through more affordable electricity pricing.
The Power Division has already presented detailed refinancing proposals to both the World Bank and the Asian Development Bank during meetings held over recent months. These proposals outline a structured refinancing framework designed to spread repayment obligations over more than a decade, reducing the immediate fiscal burden while creating space for tariff rationalisation and sectoral reforms.
Under the proposed plan, refinancing requirements would be distributed over 13 fiscal years, beginning in FY27. The estimated financing needs stand at $4.40 billion in FY27, followed by $4.18 billion in FY28 and $4.44 billion in FY29. The annual requirement is projected to gradually decline thereafter, with $3.97 billion in FY30, $3.19 billion in FY31, $3.22 billion in FY32, $2.91 billion in FY33, $2.52 billion in FY34, $2.22 billion in FY35, $1.40 billion in FY36, $1.36 billion in FY37, $1.28 billion in FY38 and $1.21 billion in FY39.
Officials noted that Pakistan’s power sector circular debt currently stands at around Rs1.8 trillion, a longstanding challenge that has weighed heavily on public finances and investor confidence. The government has set a target to contain circular debt at Rs1.6 trillion by June 30, 2026. As part of recent corrective measures, authorities raised Rs1.225 trillion from commercial banks to help reduce the existing stock of circular debt. Additionally, the government has decided to continue the recovery of the debt service charge at Rs3.23 per unit for the next six years, with the objective of bringing this charge down to zero over time.
According to the Business Recorder report, the source of refinancing will have a direct impact on future electricity tariffs for industrial consumers. If refinancing is arranged through International Financial Institutions at an interest rate of around 2%, industrial electricity tariffs are projected at 8.70 cents per unit in FY27. These tariffs are expected to fluctuate over the years, reaching 8.48 cents in FY28, 8.23 cents in FY29, 8.34 cents in FY30, and gradually rising to 9.18 cents per unit by FY39.
In contrast, if Pakistan succeeds in securing financing from Saudi Arabia at an interest rate closer to 1%, the projected industrial tariffs would be marginally lower across the same period. Under this scenario, tariffs are estimated at 8.62 cents per unit in FY27, declining to 8.02 cents in FY29, before gradually increasing to around 9.03 cents per unit by FY39. The lower cost of financing is seen as offering meaningful relief to energy-intensive industries, which have long argued that high electricity prices undermine export competitiveness.
The proposed refinancing initiative reflects the government’s broader efforts to stabilise the power sector, address structural inefficiencies, and support economic growth. While discussions with lenders and Saudi Arabia are still ongoing, officials view the plan as a critical step toward long-term sustainability of the energy sector and a more predictable tariff framework for businesses operating in Pakistan.
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