The Economic Coordination Committee (ECC) has approved a summary presented by the Power Division, sanctioning the issuance of a government guarantee worth PKR 659.646 billion to finance PKR 1.225 trillion of circular debt.
According to the Ministry of Finance, this guarantee will be provided for the loans of Power Holding Limited (PHL) and the settlement of dues owed to Independent Power Producers (IPPs). The ECC also authorized the Ministry of Finance to issue a Letter of Comfort in this regard. During the meeting, the Power Division was directed to present a report on the timeline for the closure of PHL after the loan settlement. This decision was made during the ECC meeting chaired by Finance Minister Muhammad Aurangzeb.
The ECC also deliberated on another summary from the Power Division regarding the improvement of tariff and restructuring of payments owed to Nuclear Power Plants (NPPs), Government Power Plants (GPPs), Oil and Gas Development Company Limited (OGDCL), and Sui Northern Gas Pipelines Limited (SNGPL).
The Ministry of Finance statement noted: “This proposal was developed by the Prime Minister’s Task Force on Energy Reforms, with the aim of improving fiscal sustainability, efficient organization of payments, and overall cost reduction.”
The Committee ratified a consensus framework for the settlement of dues and the waiver of certain financial claims among the concerned entities. This is intended to achieve financial balance and tariff reform goals. These steps are part of the government’s broader strategy to improve the financial health of the energy sector and reduce long-term costs.
Context on Circular Debt
Previously, the Power Division’s spokesperson stated that the PKR 79 billion increase in circular debt during the first quarter of the fiscal year 2025-26 was due to “seasonal and operational factors.” Circular debt refers to the continuous cycle of unpaid bills and financial liabilities within the energy sector that accumulates over time.
The spokesperson said that the PKR 79 billion increase should be viewed in full context, as the circular debt had increased by PKR 73 billion during the same period last fiscal year, but the total debt was reduced by PKR 780 billion by the end of the year.
According to him, the current quarter’s increase is temporary, and the trend is expected to reverse during the year. Last September, Federal Energy Minister Owais Leghari stated that circular debt would be brought to zero within the next six years. He claimed that the debt had already been reduced from PKR 2.4 trillion to PKR 899 billion.
According to statistics, the circular debt in Pakistan’s energy sector stood at PKR 1.66 trillion in July 2025, marking a significant decrease of 29.3% compared to PKR 2.35 trillion in July 2024.
