banking sector to resolve the energy sector’s persistent circular debt, amounting to a total package of Rs. 1.27 trillion. The deal is expected to bring immediate liquidity relief to the power sector and lay the groundwork for longer-term fiscal restructuring.
According to official sources, a term sheet has been signed between the government and banks through the Central Power Purchasing Agency (CPPA), the state-run entity responsible for buying electricity from generation companies. The agreement is seen as a necessary step to address the growing liabilities that have hindered the operational efficiency of Pakistan’s power infrastructure.
Under the arrangement, Rs. 658 billion in existing Term Finance Certificates (TFCs) will be rolled over by banks. These TFCs were previously issued under the umbrella of the Pakistan Holding Company Limited (PHCL) to cover earlier energy sector liabilities. By extending the maturity period on this debt, the government aims to ease short-term repayment pressures while maintaining fiscal space for other expenditures.
Additionally, a fresh injection of Rs. 617 billion will be made by the banks in the form of new financing. This cash inflow is expected to be disbursed before May 15, 2025, and will be used to clear outstanding dues to independent power producers (IPPs), fuel suppliers, and other sector stakeholders. According to sources familiar with the negotiations, this amount will be provided at a return rate ranging from 10.5% to 11%, tied to the Karachi Interbank Offered Rate (KIBOR) plus a 0.90% margin.
The deal is part of a broader strategy by the government to manage energy sector liabilities and avoid the re-accumulation of circular debt, which has historically been a drain on public finances. At its peak, Pakistan’s circular debt has crossed Rs. 2.5 trillion, driven by inefficiencies, subsidies, delayed payments, and low recoveries.
By restructuring liabilities and injecting new capital, the government aims to stabilise the power sector’s cash flows, improve payment timelines to power producers, and reduce reliance on state guarantees. The term sheet marks a critical step in reducing the burden on public sector finances and is expected to help improve the creditworthiness of the country’s energy sector.
The banking industry, meanwhile, has welcomed the agreement, viewing it as a secure and structured investment. The terms offer a moderate return with government backing, which provides assurance to the financial sector while also supporting national economic stability.
The power sector remains a cornerstone of Pakistan’s economic growth ambitions, and reforms aimed at improving its efficiency and financial health are seen as critical to achieving sustainable development and attracting future investment. The financial realignment through this Rs. 1.27 trillion agreement underscores the growing cooperation between the public and private sectors in addressing systemic economic challenges.