Pakistan’s federal cabinet, led by Prime Minister Shehbaz Sharif, has endorsed the largest-ever financial intervention aimed at resolving the chronic Rs 1.275 trillion circular debt in the country’s power sector.

This landmark plan proposes six-year refinancing of power sector liabilities without adding pressure to the national budget. Key components include:

• Refinancing Rs 683 billion owed by the Power Holding Company of Pakistan
• Clearing long-overdue dues to Independent Power Producers (IPPs)

Prime Minister Sharif described the decision as a “historic step” toward enhancing economic stability, restoring investor confidence, and reforming the energy sector’s finances.

Reactions and Related Reforms

In a separate move, the cabinet commended Finance Minister Muhammad Aurangzeb for presenting a consumer-friendly federal budget for fiscal year 2025–26.

This step complements ongoing initiatives:

• Task force under Power Minister Awais Leghari to oversee structural reforms
• Negotiations with IPPs, including recent deals to save over Rs 1.4 trillion in projected costs
• Regulatory adjustments encouraging solar net metering while balancing grid consumer interests

Why this matters

• Circular debt was a major driver of skyrocketing electricity tariffs and investor uncertainty in Pakistan.
• Addressing the debt issue improves the sector’s financial viability and could translate into reduced electricity prices for consumers.
• Combined with tariff reforms, IPP renegotiations, and pending DISCO privatisation, this package marks a significant reform push in Pakistan’s energy sector

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