PM to Witness Rs1.2tr Deal to Cut Circular Debt

Prime Minister is likely to witness a signing ceremony of a Rs 1.25 trillion financing deal with a consortium of 18 banks to end circular debt on Wednesday.

Prime Minister Shehbaz Sharif is currently visiting New York, but he will be witnessing the signing ceremony virtually.

The power division has been beating a drum to reduce circular debt. But according to figures currently released, the circular debt had jumped to Rs 47 billion due to inefficiencies in the power sector.

Chief Executive Officer of CPPA-G, Rihan Akhtar, has officially invited the concerned stakeholders on behalf of the Ministry of Energy (Power Division) to attend the signing ceremony.

The senior representatives of all banks will attend a ceremony. The consortium of banks includes Habib Bank Limited Meezan Bank Limited National Bank of Pakistan, Allied Bank Limited, United Bank Limited, Faysal Bank Limited, Bank AL Habib Limited, MCB Bank Limited, Bank Alfalah Limited, Dubai Islamic Bank Pakistan Limited, The Bank of Punjab, Bank Islami Pakistan Limited, Askari Bank Limited, Habib Metropolitan Bank Limited, Al Baraka Bank (Pakistan) Limited, Bank of Khyber, Islamic- MCB Islamic Bank Limited and Soneri Bank Limited.

At present, the government believes that circular debt has reduced to Rs 1.6 trillion, which stood at over Rs 2 trillion in the past.

The poor governance in the power sector has been a matter of key concern, which has led to poor performance of power distribution companies (Discos).

The government has been appointing politically motivated heads of power distribution companies and the board of directors (BoDs). These ad hoc arrangements also caused poor performance of energy firms.

These companies had also been involved in overbilling of the consumers. In the past, a mega scandal had surfaced when power distribution companies had been overcharged by millions of consumers.

 As per our channel checks and based on the invitation notice circulating on social media, the signing ceremony of the financing facility agreement for circular debt resolution is scheduled for Wednesday (Tomorrow), 24th September 2025, at the Prime Minister’s Office,” Topline said adding that the Prime Minister will grace the ceremony virtually, as he is currently in the US ahead of his meeting with US President Donald Trump and participation in the UN General Assembly session.

 Previously, the government finalized a plan to borrow Rs1.25-1.275 trillion from banks to retire the power sector’s circular debt. This ceremony has been long overdue, with considerable chatter in the market regarding its timing.

 News flow suggests this Rs1.25tn will include the restructuring of existing debt of Rs683bn held in the balance sheet of Power Holding Limited (PHL) at KIBOR plus 2%, as per our channel checks and news reports. The remaining amount of Rs 567 bn (fresh flow) will be used to retire the amount of nuclear, RLNG, coal, and other power plants.

 With this fresh transaction, the Government aims to retire old expensive debt of Power Holding, and reduce late payment charges which Govt. is paying to IPPs at KIBOR plus 2 to 4.5%.

 The government will be collecting this amount from electricity consumers through the PHL surcharge of Rs3.23/unit, which is already being collected at this stage. Amongst the listed companies, OGDC is expected to receive Rs80bn from Uch Power Plant, while OGDC is also expected to get some amount indirectly from SNGP, as per our channel checks. On the same lines, PPL might also be a beneficiary of this.

 PSO also stands to benefit, as its receivables remain stuck through LNG power plants via SNGPL.  On the coal side, major listed beneficiaries include Hub Power (HUBC), Lucky Cement (via Lucky Electric), FFC, and Thal Limited, which also hold stakes in coal power plants, are expected to benefit, though negotiations with Chinese IPPs have not been finalized, our channel check suggests,” Topline said.

It added that this is positive for both the Government and the listed energy sector affected companies, as inflow of fresh liquidity in the sector will help them to retire their borrowing and allocate fresh capital for business growth, i.e., exploration of new wells or in the form of payouts to shareholders.

This will pave the way for gas circular debt resolution as well, which will be highly beneficial for OGDC, PPL, PSO, and MARI, and options for this are currently being explored.