Govt nears Rs1.34tr loan deal

Leghari says talks in final stages to tackle circular debt

ISLAMABAD:

Minister for Power Sardar Awais Khan Leghari announced on Friday that negotiations with banks for loans amounting to Rs1.34 trillion were in the final stages to reduce the power sector's circular debt, which currently stands at Rs2.4 trillion.

Speaking to the media, the minister said that once banks submit their term sheets, agreements would be finalised, which would help reduce Rs300-335 billion in circular debt.

The loans will be repaid through the debt servicing surcharge (DSS) of Rs3.23 per unit, with both the current and future governments continuing repayments through this mechanism.

The minister also hinted at a further potential reduction in electricity tariffs during the upcoming tariff rebasing in June 2025, but cautioned that fluctuations in fuel prices would continue to be passed on to consumers through the fuel cost adjustment (FCA).

"If interest rates increase, or the rupee devalues, it will impact the quarterly tariff adjustment (QTA) as it is subject to fluctuations. Similarly, if dams dry up and hydel generation decreases, or if expensive fuel needs to be purchased or international energy prices rise, these changes will be reflected in the FCA," he explained.

However, he assured that the current reduction in electricity prices is based on solid and sustainable grounds.

He noted that the termination of independent power producers (IPPs) contracts and the imposition of an additional Rs10 per liter tax on petroleum products have contributed to an approximate Rs4 reduction in the price per unit, a decrease that is expected to be sustainable.

He further stressed that the petroleum levy (PL) would not be removed.

In response to questions about consumer confusion regarding the impact of price reductions on their bills, the minister clarified that the overall reduction in tariff would amount to Rs 6 per unit, plus a tax of Rs1.50 per unit.

This would result in a total reduction of Rs7.44 for domestic consumers and Rs7.69 for industrial consumers.

Moreover, savings of Rs2 per unit would be realised from the renegotiation of IPP contracts.

The minister also shared that talks with China regarding the reprofiling of debts and the conversion to local coal were progressing smoothly. He indicated that the tariff rebasing in June 2025 could bring further reductions due to the successful implementation of ongoing reforms.

"Our reforms are focused on creating a sustainable, long-term reduction mechanism based on efficiency," he added. He further explained that if the tariff reductions had been solely based on renegotiated IPP contracts, the International Monetary Fund (IMF) would not have supported such significant price cuts.

According to Leghari, the IMF had stressed the importance of continuous reform processes, which, once shared and explained, helped build confidence in the power sector's path toward sustainability.

The minister also revealed that the centralised trading of bulk power market (CTBCM) would be operationalised by the end of the current year. Initially, the government plans to start with a bilateral trade of 800-1000 MW of electricity.

"We are optimistic that if our reform process continues at the same pace, we will see significant downward pressure on electricity prices," he said.