19 hours ago
- Business
- Business Recorder
Debt shift, not debt reform
The government has finally laid out the numbers behind what it calls a 'power sector reform milestone.' At the heart of the plan is the promise to clear Rs2.4 trillion in circular debt (CD) stock, a long-standing source of fiscal haemorrhage and economic distortion. One might assume this announcement heralds structural correction, long-term efficiency, and consumer relief.
But the details tell a different story. A large part of this so-called reform involves borrowing Rs1.25 trillion from commercial banks to retire existing Power Holding Limited (PHL) loans and clear residual interest-bearing arrears owed to power producers. This new debt is to be repaid over six years through 24 equal quarterly instalments, totalling Rs1.938 trillion.
Now here's the kicker: the government claims that this facility is secured at three-month KIBOR minus 0.9 percent, as agreed with the IMF. This rate today equates to roughly 10.1 percent per annum.
But the math simply does not add up.
A Rs1.275 trillion loan repaid in Rs1.938 trillion over six years implies an effective annual interest rate of around 17.2 percent, assuming standard amortization. That is a full seven percentage points higher than the stated concessional rate. Unless the loan was locked in when KIBOR was at 18 percent - or is structured with heavily back-loaded payments or embedded escalators - there is a clear credibility gap between what is being claimed and what is being paid.
The government needs to explain this gap. Was KIBOR frozen at the time of agreement? Are there compounding mechanics hidden under the hood of the Islamic finance structure? Is the 'KIBOR minus 0.9%' a red herring for a far more expensive reality?
Worryingly, this is not just about opaque pricing. It is about who foots the bill.
Because the loan will be repaid not by the fiscal budget, but by consumers, through the Debt Service Surcharge (DSS) on electricity bills, which have been set at 10 percent of Nepra's determined revenue requirement and now set to become uncapped. If the DSS collection falls short, it will be raised. If projections show a future shortfall, it will be pre-emptively raised.
That is not reform. That is shifting the entire burden of past mis governance, theft, non-recovery, and political expediency onto paying consumers. For six straight years.
This is not the retirement of circular debt. This is its refinancing and repackaging as consumer debt, backed by law, buried in your electricity bill, and enforced by NEPRA. It solves none of the underlying inefficiencies: transmission losses, governance failures, unchecked subsidies, DISCO mismanagement, which created the CD crisis to begin with.
This plan may look clean on government balance sheets and help Pakistan check boxes on the IMF's program matrix. But from the perspective of the average paying consumer — the very same who already bears the weight of capacity charges, taxes, and losses — this is nothing short of an institutionalized penalty.
A reform that raises no efficiency, cleans no value chain, and punishes compliance is not is a relabelling exercise: expensive, regressive, and deeply unfair.
Copyright Business Recorder, 2025
