The government is poised to reduce the power sector’s circular debt from Rs2.381 trillion to approximately Rs561 billion.

This will be achieved through a payment of Rs1,275 billion sourced from 18 commercial banks to settle liabilities with Power Holding Limited (PHL) and various power plants.

A senior official from the Power Division revealed, “We plan to disburse Rs1,275 billion this week or next to curb the circular debt to Rs561 billion, as promised to the IMF.”

The Central Power Purchase Agency-G (CPPA-G) will utilize the borrowed funds Rs1,252 billion to pay off Rs683 billion owed to PHL and clear Rs569 billion in interest-bearing arrears to power producers.

The CPPA-G will manage these payments, and the updated circular debt figure will be posted on the official Power Division website. The success in reducing the circular debt is attributed to the Task Force on Power Sector, which includes PM Adviser Muhammad Ali and Lt General Zafar Iqbal, along with experts from SECP, CPPA-G, and Nepra.

They negotiated to clear Rs348 billion in arrears, with Rs127 billion covered by budgeted subsidies and Rs221 billion paid by CPPA.

Additionally, the Task Force secured the waiver of Late Payment Interests (LPIs) for Independent Power Producers (IPPs) amounting to Rs387 billion. Of the remaining liabilities, Rs224 billion are non-interest-bearing while Rs337 billion are interest-bearing, leaving Rs561 billion as the residual circular debt, which will be addressed through reforms and efficiency improvements in distribution companies (Discos).

Electricity consumers will repay the Rs1,275 billion loan through an existing Debt Service Surcharge (DSS) of Rs3.23 per unit, which will not impose any new financial burden.

However, this surcharge will continue for six years to settle the loan.

The government clarified that the surcharge has already reached its 10 percent cap, which will not be increased; the IMF has removed this cap as a structural benchmark.