ISLAMABAD: Electricity consumers across Pakistan are already paying a Debt Service Surcharge (DSS) of Rs3.23 per unit on their monthly power bills — a charge that will remain in place for the next six years to help repay a massive Rs1,275 billion loan.
Though not classified as an “additional” fee under the current billing structure, this surcharge plays a critical role in addressing the chronic circular debt plaguing the country’s power sector.
The loan was secured by the Central Power Purchase Agency (CPPA) from 18 commercial banks as part of a broader strategy to resolve the circular debt crisis, a senior Power Division official confirmed. The term sheet for the agreement has been finalized and forwarded to the federal cabinet for approval, with a decision expected once Prime Minister Shehbaz Sharif returns from his visit to the UAE.
Previously, the surcharge was capped at 10%, but this restriction has now been lifted — a change reportedly made under IMF pressure, which had identified the cap as a structural benchmark. Despite this, the government has no immediate plans to raise the surcharge further.
The official stated that the Rs1.275 trillion in financing will likely be operational by the third or fourth week of June.
Of the total circular debt, which currently stands at Rs2.381 trillion, this loan is expected to reduce it by Rs1.275 trillion. The remainder will be tackled through multiple measures, including:
- Lower interest rates
- Renegotiated agreements with Independent Power Producers (IPPs)
- Termination of six IPP contracts
Ultimately, the government aims to bring circular debt down to Rs300 billion, which it plans to eliminate through operational efficiencies.
Under the finalized deal, commercial banks will extend a fresh loan of Rs617 billion at an interest rate of 10.50% to 11% (KIBOR minus 0.90 basis points). Consumers will repay this amount over six years via the DSS already included in their bills.
To streamline repayments, banks will directly deduct the surcharge at source when consumers pay their electricity bills — a move expected to improve lenders’ credit risk confidence.
Notably, the IMF has permitted commercial banks to lend directly to CPPA without a sovereign guarantee. The new Rs617 billion facility supplements a prior Rs658 billion loan issued through Power Holding Limited (PHL), which was backed by a government guarantee. Together, these two loans form the Rs1.275 trillion package aimed at stabilizing the power sector’s finances.
