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Express Tribune
17 hours ago
- Business
- Express Tribune
Rs1.275tr loans signed to ease circular debt
Pakistan has signed term sheets with 18 commercial banks for a Rs1.275 trillion ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning "circular debt", unpaid bills and subsidies, that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. "Eighteen commercial banks will provide the loans through Islamic financing," Khurram Schehzad, adviser to the finance minister, told Reuters. The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR, the benchmark rate banks use to price loans, minus 0.9%, a formula agreed on by the IMF. "It will be repaid in 24 quarterly instalments over six years," and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks participating in the deal. The government expects to allocate Rs323 billion annually to repay the loan, capped at 1.938 trillion rupees over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Express Tribune
a day ago
- Business
- Express Tribune
Govt secures Rs1.275tr to address power sector debt
Listen to article The government has signed term sheets with 18 commercial banks for a Rs1.275 trillion ($4.5 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning "circular debt"—unpaid bills and subsidies—that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment, and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. Read More: Pakistan signs '$1b' loan facility "Eighteen commercial banks will provide the loans through Islamic financing," Khurram Schehzad, adviser to the finance minister, told Reuters. The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR (the benchmark rate banks use to price loans) minus 0.9%, a formula agreed on by the IMF. "It will be repaid in 24 quarterly instalments over six years," and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Also Read: Banking sector expands 15.8% in 2024 Meezan Bank, HBL, National Bank of Pakistan, and UBL were among the banks participating in the deal. The government expects to allocate Rs323 billion annually to repay the loan, capped at Rs1.938 trillion over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Business Recorder
a day ago
- Business
- Business Recorder
Pakistan signs $4.5bn loans with local banks to ease power sector debt
KARACHI: Pakistan has signed term sheets with 18 commercial banks for a 1.275 trillion Pakistani rupee ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday. The government, which owns or controls much of the power infrastructure, is grappling with ballooning 'circular debt', unpaid bills and subsidies, that has choked the sector and weighed on the economy. The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure, making it a key focus under Pakistan's $7 billion IMF programme. Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult. 'Eighteen commercial banks will provide the loans through Islamic financing,' Khurram Schehzad, adviser to the finance minister, told Reuters. Power sector circular debt plan okayed by Cabinet The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR, the benchmark rate banks use to price loans, minus 0.9%, a formula agreed on by the IMF. 'It will be repaid in 24 quarterly instalments over six years,' and will not add to public debt, Power Minister Awais Leghari said. Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans ranging slightly above benchmark rates. Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks participating in the deal. The government expects to allocate 323 billion rupees annually to repay the loan, capped at 1.938 trillion rupees over six years. The agreement also aligns with Pakistan's target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.
Business Recorder
3 days ago
- Business
- Business Recorder
Rs1.275trn loan deal finalised with banks
ISLAMABAD: The Federal Cabinet on Wednesday approved a long-anticipated agreement between the Government of Pakistan (GoP) and approximately 18 commercial banks for a landmark Rs 1.275 trillion loan, following intense negotiations over each clause. Sources in Power Division told Business Recorder, the loan aims to address a portion of the country's ballooning circular debt, currently estimated at around Rs 2.4 trillion. The International Monetary Fund (IMF) has already endorsed the government's circular debt reduction plan, which includes borrowing from commercial banks. Of the total circular debt, about Rs 700 billion is already carried on the books of the Power Holding Company Limited (PHL), on behalf of the power distribution companies (Discos). Rs1.275trn loan to tackle circular debt: CPPA-G likely to sign term sheets with 18 banks Under the agreement, commercial banks will provide fresh loans amounting to Rs 683 billion at an interest rate of 10.5%–11%, pegged to the Karachi Inter-bank Offered Rate (KIBOR) minus 0.90 basis points. Repayment will be made over six years via the Debt Service Surcharge (DSS), which is currently charged to electricity consumers at Rs 3.23 per unit. Notably, this mechanism ensures there will be no additional burden on the national treasury. According to the approved plan, the Rs 683 billion in financing will be used to clear PHL's outstanding liabilities. Repayment will occur in 24 semi-annual installments, with an annual ceiling of Rs 323 billion. In the event of rising interest rates, the total repayment cap has been set at Rs 1.938 trillion. Earlier reports suggested that banks had requested a guarantee from the State Bank of Pakistan in case the government defaulted. Sources familiar with the negotiations revealed that government representatives reminded the banks of the potential risks to their investments should the power sector collapse—an implicit warning aimed at expediting the deal. However, an official denied that any threats were made, stating that banks were simply asked to appreciate the seriousness of the situation. In response to concerns about delays in finalizing the term sheets, one key stakeholder dismissed such claims. 'There's no delay—we're just ironing out final details. This is a massive, unprecedented transaction in Pakistan, so it's natural that many elements require careful attention,' the official said. Official documents confirm that the government has committed to the IMF to borrow Rs 1.252 trillion from banks—Rs 683 billion to settle existing PHL loans, and Rs 569 billion to clear remaining interest-bearing arrears owed to power producers. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
Power sector: federal cabinet approves Rs1.275trn bank loan to cut circular debt
Pakistan federal cabinet approved on Wednesday Rs1.275 trillion loan from commercial banks at 'the lowest-ever rate' to cut its power sector's circular debt. The decision was taken for a permanent resolution of the circular debt in the power sector, the Ministry of Energy (Power Division) said. The loan aims to offset a portion of the circular debt, which currently stands at approximately Rs2.4 trillion. 'Under the plan, Rs1.275 trillion will be acquired from banks at a historic low interest rate — 0.9% lower than the 3-month KIBOR [Karachi Interbank Offered Rate],' it said. 'For the first time, instead of maintaining the circular debt stock at a certain level through previous methods, it will be gradually eliminated with the help of banks.' Circular debt: Govt in talks with banks to raise Rs1.275trn The loan of Rs1.275 trillion would be used to clear dues of independent power producers (IPPs) and retire Power Holding Company Limited (PHL) debt, the Power Division said. 'The acquired loan will also be fully retired over the next six years. This move will not impose any additional financial burden on the national exchequer.' According to the cabinet-approved plan, Rs683 billion of the financing will be used to clear the outstanding dues of the Power Holding Company Limited (PHL) . The loan will be repaid in 24 semi-annual installments, and the interest rate will be 0.9% lower than the 3-month KIBOR. An annual repayment cap of Rs323 billion was set, while a maximum repayment limit of Rs1.938 trillion was set in case of increased interest rates in the future. Business Recorder reported earlier this month that the government had finalised agreements for a historic loan package of Rs1.275 trillion with approximately 18 commercial banks to address the growing circular debt in the power sector. How will govt clear Rs2.4trn circular debt? Pakistan government has committed to the International Monetary Fund (IMF) to clear the circular debt by end of fiscal year 2025, according to the IMF report 'First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility' released last month. K-Electric write-offs: NEPRA allows Rs50 billion as 'full and final claim' According to the IMF report, Pakistan government has said that it's on track to achieve net zero circular debt flow for FY25 and will strive for the same in FY26, through 'a combination of timely tariff increases, targeted subsidies, and cost-reducing reforms'. As per the government commitment, the National Electric Power Regulatory Authority (NEPRA) will continue with timely automatic notifications of regular quarterly tariff adjustments (QTAs) and monthly fuel cost adjustments (FCAs) to capture any gaps between the base tariff and actual revenue requirements that arise during the year, to prevent circular debt flow. 'We [Pakistan government] will ensure the full implementation of the July 2025 annual rebasing (new SB, July 1, 2025), QTRs, and FCAs going forward. All provinces agree not to introduce any subsidy for electricity or gas.' Of the existing circular debt stock of Rs2.4 trillion (2.1 percent of GDP), the government committed to clear, by end-FY25, Rs348 billion via renegotiation of arrears with IPPs (Rs127 billion of which will be via already-budgeted subsidy for circular debt stock clearance and Rs221 billion of which will be via CPPA cash flow); Rs387 billion via waived interest fees; and Rs254 billion via additional already-budgeted subsidy for circular debt stock clearance; Rs224 billion in non-interest-bearing liabilities will not be cleared. The remaining Rs1.252 trillion (now Rs1.275 trillion) was committed to be borrowed from banks to repay all PHL loans (PRs 683 billion) and to clear the remaining stock of interest-bearing arrears to power producers (PRs 569 billion), according to the IMF report.
