Pakistan’s energy sector is once again at the edge of a precipice it has looked over far too many times before. As of March 2025, the debt had grown to nearly Rs2.4 trillion, equivalent to about 2.1% of the country’s GDP. This is not merely a technical or financial issue but a structural affliction rooted in policy inertia, political compromise, and institutional decay—driven by weak collections, theft, poor infrastructure, governance failures, and market inefficiencies.

The government’s latest attempt to tackle the power sector crisis is a historic Rs1.225 trillion syndicated bank financing arrangement (structured under Islamic finance), orchestrated by CPPA-G and endorsed by the IMF along with 18 participating commercial banks.

The initiative seeks to partially settle the circular debt by addressing legacy liabilities of Power Holding Limited (PHL) facilities—including Syndicated Long-Term Financing and Pakistan Energy Sukuks I & II—amounting to approximately Rs659 billion, as well as outstanding late payment charges of IPPs.

Representing the largest banking transaction in Pakistan’s history, this refinancing offers temporary relief but raises a critical question: is it merely a restructuring of debt that paves the way for further borrowing?

Unlike previous bailouts, the government’s 2025 plan is more refined, featuring a repayment structure with a tenor of up to six years and no grace period.

Repayments will be made in 24 quarterly installments covering both profit and principal, with profit made quarterly in arrears at a rate of 3-month KIBOR minus 90 basis points per annum. The plan commits annually fixed cash flow of PKR 310 billion over six years, or until full repayment of the Facility/Instrument, whichever is earlier. In an environment of high risk and uncertain returns, banks have demonstrated a willingness to shoulder exposure to the beleaguered power sector.

This reflects not just regulatory coordination through the Pakistan Banks Association (PBA) but also a broader institutional commitment to........

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