The government is stirring the pot again, reportedly eyeing a 1.25 trillion-rupee loan from commercial banks to slice the 2.5 trillion-rupee circular debt in half—a move aimed at easing the chokehold of interest and late fees owed to power producers.
The hope? Cheaper electricity down the line for a public weary of soaring bills. But while the deal’s terms simmer in negotiation, whispers of a broader fix are growing louder. The power sector’s a mess—inefficient, tangled in rigid contracts with IPPs, and propped up by stopgap tariffs that punish the poor. Politicians mean well, but they’re out of their depth; experts, not generalists, are what’s needed to untangle this knot before another Band-Aid loan just delays the inevitable.
Whispers in the news hint that the government is gearing up to borrow a hefty 1.25 trillion rupees from commercial banks to chip away at the towering 2.5 trillion-rupee circular debt haunting the power sector. That’s half the beast tackled, though the fine print—like the interest rate the government will dangle before the banks—is still up in the air. Word on the street is the deal’s close to being sealed, and you can almost hear the sigh of relief from officials hoping to lighten the load.
The goal? Slash the interest rates and those pesky late-payment fees owed to Independent Power Producers, bringing them down to a range of Kibor plus 2 to 4.5 percent. If it works, the dream is cheaper electricity bills for folks at home—lower per-unit costs that could ease the sting of powering a fan or boiling a kettle. But here’s the catch: while the savings on interest sound great, they won’t hit consumers’ wallets for another five or six years. Patience, it seems, is part of the package.
This isn’t the first time the government’s turned to banks to bail out the power sector’s woes. Since 2008, loans to cover these inefficiencies have been stashed in the Power Holding Private Limited Company, a sort of financial attic for past promises. Every administration has sworn to global lenders like the IMF and ADB that they’d stem the tide of this circular debt—not just the pile already there, but the fresh leaks springing up. Yet, the needle barely moves.
Back in March 2021, the Asian Development Bank laid it out plain as day in a report with a mouthful of a title: Energy Sector Reforms and Financial Sustainability. They pinpointed five culprits feeding this debt monster: sky-high power generation costs that trickle down to sloppy collections and operations at the distribution companies (Discos); hiccups and foot-dragging in setting tariffs; leaky transmission lines and weak revenue hauls by Discos; patchy, often tardy subsidies from the government to Discos and K-Electric; and the steep borrowing costs and late-payment penalties piling up. Fast forward to today, and those same gremlins are still rattling the cage—no wonder the sector’s stuck in a rut.
So, here comes the government with a new loan idea, aiming to trim interest costs. It’s a bandage, sure, but it’s not digging into the root rot—like the operational flops, policy missteps, or the bigger economic mess. Take the tariff differential subsidy: taxpayers are shelling out over half a trillion rupees a year to keep Discos afloat, and even K-Electric—a private outfit—scored a cool 174 billion rupees in this year’s budget. Borrowing more might ease the sting for now, but without tackling the chaos fueling the debt, it’s like mopping the floor during a rainstorm. The lights might stay on, but at what cost?
It’s high time the government stopped leaning on well-meaning politicians—who, let’s face it, are usually jacks-of-all-trades—and brought in power sector wizards to craft a real, no-nonsense plan. The mess with Independent Power Producers (IPPs), especially the Chinese ones, needs a hard look. They’ve nodded at tweaking repayment schedules, but renegotiating the core deals? Not a chance. Those “take or pay” contracts are locked tight, and switching to “take and pay” feels like a distant dream. Meanwhile, pushing green energy like solar or wind sounds noble—and it’s the future, no question—but right now, it’s a gamble. Less demand from the national grid just jacks up tariffs to cover IPP dues, leaving consumers footing the bill.
The International Energy Agency dropped a subtle hint recently: Pakistan’s industries are getting a raw deal. They’re shelling out double what their counterparts in China, the U.S., India, or most of Europe pay for electricity. Even Europe, reeling from pricier fuel after cutting off Russia’s cheap supply amid U.S.-led sanctions, doesn’t sting its factories this bad. But power’s not the only thorn in Pakistan’s side—borrowing cash costs a fortune here compared to rival nations, and while labor might be cheaper, it’s often less skilled, hobbling the country’s edge.
For years, governments have tossed tax breaks and cash perks at the big five export industries to keep them humming. But the current crew, tied to a $7 billion IMF Extended Fund Facility, has sworn off those handouts. That’s likely to hit exports hard, just when they need a boost. The power sector, meanwhile, keeps limping along, bleeding inefficiency. Past leaders only cherry-picked reforms that lenders like the IMF demanded—reforms that boil down to slapping higher tariffs on the public to mask the sector’s flaws. It’s a tired playbook, and it’s got to stop.
Poverty’s climbed to a staggering 44% here, and the average person’s ability to juggle electricity bills with daily survival has shrunk to a whisper. The government can’t keep passing the buck to folks who are already stretched thin. It’s time for a policy that digs into the dirt of those IPP contracts, weighs the real costs of green shifts, and stops treating tariffs like a catch-all fix. Bring in the experts—people who live and breathe this stuff—and let’s build something that actually works for Pakistan, not just its creditors.
Borrowing a trillion-plus rupees might trim the power sector’s debt for now, but it’s a shaky fix for a system groaning under its own weight. The circular debt’s roots—sky-high generation costs, leaky grids, and unyielding IPP deals—won’t budge with more cash alone, especially when 44% of Pakistanis are scraping by in poverty, their patience for tariff hikes worn razor-thin. The government’s got to ditch the short-term playbook and call in sector pros to rethink it all: rework those stubborn “take or pay” contracts, weigh the green energy push without hiking rates, and stop leaning on taxpayers to plug the gaps. Otherwise, this loan’s just another chapter in a story where the lights flicker, the bills climb, and the real fix stays out of reach.