Pakistan Seeks $36bn Power Sector Refinancing to Cut

PTBP Web Desk

The federal government has initiated detailed discussions with International Financial Institutions (IFIs) and Saudi Arabia to secure long-term financing worth USD 36 billion aimed at refinancing the country’s mounting power sector debt. The ambitious plan, expected to begin in FY27 and spread over a period of 13 years, is designed to ease debt servicing pressure and ultimately reduce electricity tariffs, particularly for Pakistan’s industrial sector, according to informed sources who spoke with Business Recorder.

This proposed Pakistan power sector refinancing initiative represents one of the largest structural interventions in the energy sector in recent years. Officials believe it could significantly lower electricity costs, improve industrial competitiveness, and help stabilize the country’s fragile energy finances.

Sources indicate that negotiations are ongoing with major multilateral lenders, including the World Bank and the Asian Development Bank (ADB). The financing being discussed with IFIs is expected to carry a concessional interest rate of approximately 2 per cent. Meanwhile, parallel talks are being held with Saudi Arabia, where the government is seeking even more favorable terms, potentially at an interest rate as low as 1 per cent.

The Power Division has already presented detailed refinancing proposals during recent engagements with both the ADB and the World Bank. These discussions have focused on restructuring existing liabilities in a way that reduces annual debt servicing costs without adding immediate fiscal stress.

Under the government’s proposed framework, the USD 36 billion refinancing will be distributed over thirteen fiscal years, starting in FY27. The annual breakdown of refinancing requirements is as follows:

FY27: USD 4.40 billion
FY28: USD 4.18 billion
FY29: USD 4.44 billion
FY30: USD 3.97 billion
FY31: USD 3.19 billion
FY32: USD 3.22 billion
FY33: USD 2.91 billion
FY34: USD 2.52 billion
FY35: USD 2.22 billion
FY36: USD 1.40 billion
FY37: USD 1.36 billion
FY38: USD 1.28 billion
FY39: USD 1.21 billion

This gradual refinancing approach is intended to prevent sudden shocks to public finances while allowing the government to systematically manage its energy-sector obligations.

Pakistan’s power sector continues to struggle with chronic circular debt, which currently stands at around Rs 1.8 trillion. However, the government has set a clear target to contain this figure at Rs 1.6 trillion by June 30, 2026, signaling a renewed commitment to financial discipline in the energy sector.

Recently, the government raised Rs 1.225 trillion from commercial banks as part of its efforts to reduce circular debt. In addition, it has decided to continue recovering the Debt Service Charge (DSC) at Rs 3.23 per kilowatt-hour for the next six years, with the aim of gradually bringing it down to zero.

These measures, combined with external refinancing, are expected to create fiscal space for tariff rationalization.

Impact on Industrial Electricity Tariffs

One of the most significant outcomes of the refinancing plan will be its impact on industrial electricity tariffs, which are often cited as a major constraint on Pakistan’s manufacturing and export competitiveness.

If the government succeeds in securing financing from IFIs at an interest rate of 2 per cent, industrial electricity tariffs are projected to decline as follows:

FY27: 8.70 cents/kWh
FY28: 8.48 cents/kWh
FY29: 8.23 cents/kWh
FY30: 8.34 cents/kWh
FY31: 8.66 cents/kWh
FY32: 8.56 cents/kWh
FY33: 8.72 cents/kWh
FY34: 9.08 cents/kWh
FY35: 9.18 cents/kWh
FY36: 9.59 cents/kWh
FY37: 9.46 cents/kWh
FY38: 9.34 cents/kWh
FY39: 9.18 cents/kWh

However, if Saudi Arabia provides financing at the lower 1 per cent interest rate, tariffs would decline even further, offering greater relief to industrial consumers:

FY27: 8.62 cents/kWh
FY28: 8.34 cents/kWh
FY29: 8.02 cents/kWh
FY30: 8.12 cents/kWh
FY31: 8.45 cents/kWh
FY32: 8.35 cents/kWh
FY33: 8.52 cents/kWh
FY34: 8.88 cents/kWh
FY35: 8.99 cents/kWh
FY36: 9.42 cents/kWh
FY37: 9.30 cents/kWh
FY38: 9.18 cents/kWh
FY39: 9.03 cents/kWh

Lower electricity tariffs are expected to provide a much-needed boost to Pakistan’s industrial sector, particularly export-oriented industries such as textiles, chemicals, and engineering goods. Energy costs in Pakistan remain significantly higher than in regional competitors, and policymakers believe this refinancing initiative could help narrow that gap.

According to energy experts, sustained tariff reductions would also improve investor confidence and support long-term economic growth.

The proposed Pakistan power sector refinancing aligns with broader structural reform commitments made to international lenders. By addressing inefficiencies in the energy sector, the government aims to reduce fiscal risks, stabilize public finances, and create room for growth-enhancing investments.