ISLAMABAD: The government has capped Debt Service Surcharge (DSS) at Rs 310 million per quarter to be paid to the banks , a decision that effectively set the size of the upcoming financing package at Rs 1.225 trillion instead of Rs 1.275 trillion.
According to official sources, allowing DSS of Rs 325 million per quarter would have lifted the package to Rs 1.275 trillion, but the government has decided to keep it at current level Rs 3.23 per unit.
“ Increase in DSS was politically untenable, so the government settled on Rs 310 million per quarter , which brings the financing down to Rs 1.225 trillion,” a source confirmed.
When this cap is applied to the agreed terms, the total comes to Rs 1.225 trillion at Kibor minus 9 percent over six years, said an official who was involved in negotiations with the banks.
The package, finalized with 18 banks, is aimed at partially retiring the power sector’s circular debt, which now stands at around Rs 1.7 trillion, reduced from Rs 2.5 trillion. Of the Rs 1.225 trillion, Rs 659 billion will be used to repay loans previously obtained by Power Holding Limited (PHL). The utilization of the remaining funds—whether for payments to independent power producers (IPPs), the petroleum sector, or subsidy adjustments—remains undecided.
“All codal requirements, requisite documents, and guarantees have been completed. The Prime Minister has been asked to witness the signing ceremony, likely to be held at the PM’s Office,” an official said. Prime Minister, Shehbaz Sharif is likely to witnesses documents signing ceremony between the CPPA-G( Power Divisions) and banks.
Under the arrangement, the government will have 30 days after the signing to request disbursements, which must be promptly utilized to avoid penalties. Any withdrawal request not fully used within the period will lapse, though a further three months will be available to draw on approved amounts.
Officials also indicated that the government intends to “test” which IPPs—local or Chinese—are willing to offer discounts on outstanding dues, an exercise postponed earlier due to the Prime Minister’s China visit.
While the loan package provides temporary breathing space, the underlying debt challenge persists, with repayments locked in for six years at Kibor minus 9 percent. Critics note that the arrangement highlights the deepening reliance on domestic banks to plug systemic gaps in the energy sector.
The consortium includes Meezan Bank, Habib Bank, National Bank, United Bank, Allied Bank, MCB, Bank Alfalah, Faysal Bank, Bank Al Habib, Bank of Punjab, Dubai Islamic, Askari, Habib Metropolitan, Bank Islami, Al Baraka, Bank of Khyber, MCB Islamic, and Soneri Bank.
According to International Finance Institute, (IFI) circular debt is an issue that has plagued Pakistan since 2006, with serious repercussions for the economy. Many of the problems are well established, yet institutional reluctance has made it a difficult problem to resolve. Until that hurdle is overcome, circular debt will continue to weigh on the country. It is the clearest example of why Pakistan’s reforms continue to fall short and why fiscal risks remain entrenched.
