Pakistan Seeks $36bn Financing to Refinance Power Debt

The Government of Pakistan is actively engaged in negotiations with international financial institutions (IFIs) including the World Bank and Asian Development Bank, as well as with the Kingdom of Saudi Arabia, to secure approximately US$36 billion in long-term concessional financing spread over 13 years commencing from FY27. The primary objective is to refinance the power sector’s debt servicing obligations, thereby alleviating pressure on electricity tariffs—particularly for industrial consumers—and supporting sustainable fiscal management in the energy sector.

Official sources indicate that discussions with the IFIs envisage an indicative interest rate of around 2%, while parallel talks with Saudi Arabia are targeting financing at approximately 1%. The Power Division has already presented detailed refinancing proposals to the World Bank and Asian Development Bank during recent high-level meetings.

The proposed repayment schedule outlines the following annual financing requirements: US$4.40 billion in FY27, US$4.18 billion in FY28, US$4.44 billion in FY29, US$3.97 billion in FY30, US$3.19 billion in FY31, US$3.22 billion in FY32, US$2.91 billion in FY33, US$2.52 billion in FY34, US$2.22 billion in FY35, US$1.40 billion in FY36, US$1.36 billion in FY37, US$1.28 billion in FY38, and US$1.21 billion in FY39.

The power sector’s circular debt currently stands at approximately Rs1.8 trillion. The government aims to contain it at Rs1.6 trillion by June 30, 2026. Recent measures include raising Rs1.225 trillion from commercial banks to reduce the circular debt stockpile and continuing recovery of the Debt Service Charge at Rs3.23 per unit for the next six years with the goal of eliminating the liability entirely.

Should financing be secured from IFIs at around 2% interest, projected industrial electricity tariffs (in US cents per unit) are estimated as follows: 8.70 in FY27, 8.48 in FY28, 8.23 in FY29, 8.34 in FY30, 8.66 in FY31, 8.56 in FY32, 8.72 in FY33, 9.08 in FY34, 9.18 in FY35, 9.59 in FY36, 9.46 in FY37, 9.34 in FY38, and 9.18 in FY39.

In the event concessional financing is obtained from Saudi Arabia at approximately 1% interest, the projected industrial tariffs would be marginally lower: 8.62 cents in FY27, 8.34 in FY28, 8.02 in FY29, 8.12 in FY30, 8.45 in FY31, 8.35 in FY32, 8.52 in FY33, 8.88 in FY34, 8.99 in FY35, 9.42 in FY36, 9.30 in FY37, 9.18 in FY38, and 9.03 in FY39.

These refinancing arrangements, if successfully concluded, are expected to materially reduce the cost of power for industry, enhance competitiveness, and contribute to long-term fiscal and energy sector stability.