Historic deal signed for resolving power sector’s Rs1.2 trillion circular debt

ISLAMABAD: The government has successfully executed a historic Rs1,225 billion restructuring deal to resolve the country’s long-standing power sector circular debt. The move is being hailed as a landmark achievement for Pakistan’s economic reform agenda, and a notable step toward fiscal discipline, energy sector sustainability, and renewed investor confidence.

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The breakthrough was achieved through a joint effort spearheaded by the Prime Minister’s Task Force on Power, in close coordination with the Ministry of Finance, Ministry of Energy, State Bank of Pakistan (SBP), Pakistan Banks Association (PBA), and 18 partner banks.

The agreement includes the restructuring of Rs660 billion in existing loans and Rs565 billion in new financing, which will be used to clear overdue payments to power producers. Notably, the Ministry of Finance confirmed that no new burden will be placed on consumers, as repayments will be covered through an existing Rs3.23 per unit surcharge.

The deal also unlocks Rs660 billion in sovereign guarantees, which will now be redirected to inject much-needed liquidity into priority sectors including agriculture, SMEs, housing, education, and healthcare.

The monumental effort was led by Federal Minister for Power Sardar Awais Ahmad Khan Leghari, with firm backing from Finance Minister Muhammad Aurangzeb, Advisor to the PM on Privatisation Muhammad Ali, National Coordinator Lt General (Retd) Muhammad Zafar Iqbal, SBP Governor Jameel Ahmed, and Secretary Finance Imdadullah Bosal, alongside the PBA and participating banks.

“This achievement reflects the power of collective leadership and effective teamwork, underpinned by technical excellence, inter-institutional coordination, and public-private collaboration,” said Finance Minister Aurangzeb, adding that it sets a precedent for addressing Pakistan’s structural challenges with innovation, unity, and resolve.

Aurangzeb noted that the deal is not just a financial arrangement but a strategic milestone that sends a clear signal to both domestic and international investors about Pakistan’s commitment to economic stability and energy sector reform.

The SBP and the PBA played a critical role in mobilising the financing package. Their participation also showcased the strength of public-private collaboration in tackling macroeconomic challenges.

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The resolution of the Rs1.2 trillion circular debt is expected to bring long-term relief to the power sector, which has been hampered for years by inefficiencies, liquidity shortages, and mounting arrears. By addressing these bottlenecks, the government aims to improve service delivery, attract investment, and restore financial health across the energy value chain.

With the deal finalised, the focus now turns to privatisation efforts, loss reduction, and operational reforms in the energy sector, in an agenda that both the Finance and Energy Ministries say will continue with urgency and transparency.