Circular debt: Talks on with banks to finalise terms for Rs1,240bn loan

ISLAMABAD: The government functionaries are in talks with banks to finalise the term sheet for borrowing Rs1,240 billion to resolve the stock of circular debt which currently hovers at Rs2,381 billion, as the discount rate has tumbled to 12 percent from 22 percent, top officials privy to the development told this scribe. “In the time to come, discount rate may further go down. The authorities want to take advantage of the situation and borrow the amount of Rs1.242 trillion,” the official said. “The relevant authorities are engaged with banks and want to finalise the term sheet prior to arrival of IMF mission,” he said.

The governor State Bank of Pakistan (SBP) and finance minister are also part of the talks, he added. The government functionaries want to borrow Rs1,240 billion on the interest rate of 6-7pc for seven years. However, the banks want to lend loans at KIBOR+1 rate.

“Once the term sheet is finalised, the government will borrow loans from banks for seven years which will be paid back by electricity consumers through current debt servicing surcharge of Rs3.23 per unit in the tariff,” the official said.

The official said out of Rs2,400 billion, almost Rs720 billion has already been settled by paying the past dues of six IPPs whose contracts got terminated and 15 IPPs whose power purchase agreements are switched on “take and pay” model.

The authorities have settled with IPPs the amount of Rs450 billion (Rs300 billion is paid and Rs150 billion in the head of LPS is waived off). And Rs286 billion dues of Wapda have also been settled with no interest payments. “If circular debt is resolved, it would ease out power sector which is being opened to private power market and DISCOs are being privatised,” the official said.

According to the latest data about circular debt in power sector till November 2024, the country’s circular debt has slightly tumbled by Rs12 billion to Rs2,381 billion during the July-November period of FY25 from Rs2,393 billion in June 2024. However, losses in the wake of DISCOs’ inefficiency and under-recovery stood at Rs170 billion (Rs94 billion on account of inefficiency and Rs76 billion because of under-recovery).

The payables to power producers stood at Rs1,608 billion with loan amounts parked in the Power Holding Private Company (PHPL) stood at Rs683 billion. However, GENCOs payable to fuel suppliers stood at Rs90 billion in the first five months of Fiscal Year. Data shows the budgeted but unreleased subsidies stood at Rs5 billion, while the interest charges on loans of PHPL and payments to IPPs stayed at Rs70 billion.

In the data of November 2024 uploaded on official website of Power Division, it has also been highlighted pending generation cost under the head of QTA (Quarterly Tariff Adjustments) and FCA (Fuel Charges Adjustments) stood at Rs31 billion. Data also shows the amount of Rs11 billion was payable by K-Electric to CPPA.