By SKM
September 25, 2025
ISLAMABAD: Pakistan is set to deliver a major relief to electricity consumers, with a 10 percent tariff reduction expected between 2029 and 2031, once a Rs1.225 trillion syndicated loan to retire circular debt is fully repaid, senior Power Division officials confirmed.
The Debt Service Surcharge (DSS) of Rs3.23 per unit, currently included in power bills to finance the loan, will be abolished after repayment, providing direct tariff relief. The landmark deal — Pakistan’s largest-ever structured energy sector financing — aims to inject liquidity into the struggling power sector while avoiding further burden on the fiscal budget.
Structured under Islamic finance principles, the facility utilizes Bai’ Muajjal, Ijara, and Sukuk issued on the Pakistan Stock Exchange. The loan carries a markup of KIBOR minus 0.90%, well below market rates, and will be repaid over a maximum of six years using the DSS already in place.
The transaction averts an estimated Rs350–377 billion in Late Payment Interest (LPI), which would have been incurred under previous ad-hoc debt cycles. Officials say it will also reduce the annual cost of circular debt by 1.5%, improve cash flow for power producers and distribution companies, and minimize outages and fuel shortages.
By mid-2025, Pakistan’s circular debt had ballooned to Rs2.4 trillion, equivalent to 2.1% of GDP, threatening the sustainability of the energy supply chain. This financing marks a shift from repeated bailouts to a market-based, reform-oriented solution.
The deal’s success is credited to rare civil-military institutional coordination. Prime Minister Anwaar-ul-Haq Kakar provided political oversight, while Lt. Gen. Zafar Iqbal and Field Marshal Syed Asim Munir ensured execution discipline and strategic alignment. Privatization Minister Muhammad Ali Ghulam Muhammad worked directly with the 18 participating banks on structuring and execution.
“This is not a bailout — it’s a structural reform that restores financial discipline and investor confidence,” an official said.
Once the facility is repaid, the elimination of the DSS is expected to reduce electricity tariffs by 10%, offering long-term relief to consumers and paving the way for further reform in Pakistan’s energy sector.
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