Minister for Power Division Awais Leghari said on Friday that circular debt would be completely eliminated within the next six years.
He further said consumers would have to pay Rs3.23 per unit to retire the debt in the next five to six years.
While addressing a press conference, he said circular debt had been reduced to Rs1.64 trillion.
"Within six years, the circular debt will cease to exist," said Leghari, adding that the surcharge of Rs3.23 being collected from consumers would also end within five to six years.
He claimed the government had successfully reduced Pakistan's power sector circular debt by Rs780 billion within a year.
Leghari said circular debt had become a chronic burden on the economy. It swelled from Rs1.1 trillion at the end of the Pakistan Muslim League-Nawaz (PML-N) government in 2018 to Rs2.25 trillion by 2022. "When the current coalition took office, the figure stood at Rs2.4 trillion," he said.
"Through tough reforms and negotiations, we brought it down to Rs1.64 trillion by June," he added.
"This includes Rs363 billion in savings from talks with Independent Power Producer (IPPs), Rs242 billion saved by curbing losses, and Rs175 billion in savings due to lower interest rates after the economy began to stabilise," he said. He added that the government had entered into a landmark agreement with a consortium of 18 banks to restructure Rs1.225 trillion worth of circular debt under more favourable terms.
He claimed the deal ensured an interest rate saving of 3.5% to 5.5% and would eventually wipe out circular debt within six years.
"This is a historic step. The surcharge of Rs3.23 per unit currently being collected from consumers will also end within five to six years instead of the eight to ten years originally projected," Leghari said.
"We have discussed the plan in detail with the International Monetary Fund (IMF), and it has been incorporated into our programme targets. Today again, we spoke to the IMF mission in Islamabad about progress," he added.
Leghari said the debt resolution would strengthen Pakistan's macroeconomic stability. He said no other economy in the world carried such a recurring burden of circular debt. "By reducing it, we are not only stabilising the energy sector but also creating fiscal space for agriculture, Small and Medium sized Enterprises (SMEs), housing, education, and health," he added.
The minister said power distribution companies (DISCOs) had also started showing improvement. Their boards are now focusing on reducing losses. He said industries were receiving electricity at 38% lower rates. Around 18 million domestic consumers, nearly half of all households, were benefitting from reduced tariffs.
He further said that solar net-metering tariffs had created "a dangerous imbalance" and warned that rates needed to be reviewed. "If adjusted, it could reduce electricity bills for over 32 million people," he said, adding that reform in this area was necessary to ensure fairness across consumer segments.
Leghari said circular debt would be eliminated "once and for all" through sustained reforms. "Pakistan's economy depends on its energy sector. By resolving circular debt, we are laying the foundation for long-term growth and stability," he added.
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