Power consumers to bear Rs3.23/unit surcharge until 2031

ISLAMABAD, JUN 13 (DNA): Electricity consumers across Pakistan are already paying a Debt Service Surcharge (DSS) of Rs3.23 per unit on their monthly bills, a levy that will continue for the next six years to facilitate the repayment of a massive Rs1,275 billion loan.

This financial burden, while not an “additional” charge under the current setup, is crucial for addressing the power sector’s chronic circular debt.

The substantial loan, secured by the Central Power Purchase Agency (CPPA) from 18 commercial banks, is part of a long-term strategy aimed at finally eradicating the persistent circular debt, according to a senior Power Division official familiar with the negotiations.

The official revealed that the term sheet between the CPPA and commercial banks has been finalised, and a summary has been forwarded to the federal cabinet for approval. A decision is anticipated shortly after Prime Minister Shehbaz Sharif returns from his official visit to the UAE.

While the Rs3.23/unit surcharge had previously reached its 10 percent cap, that limitation has now been removed. This move, according to the official, comes under pressure from the International Monetary Fund (IMF), which considered the cap a “structural benchmark.” The government reportedly has no immediate plans to further increase the surcharge.

“This initiative — raising Rs1.275 trillion from commercial banks — will likely be operationalized in the third or fourth week of June,” the official said.

He added that the current circular debt stands at Rs2.381 trillion, which is expected to be reduced by Rs1.275 trillion through this loan.

The remainder of the circular debt will be addressed through multiple avenues, including gains from lower discount rates, renegotiated power purchase agreements with Independent Power Producers (IPPs), and the termination of six IPP contracts.

The government expects the circular debt to drop to just Rs300 billion, which it plans to eliminate through operational efficiencies.

Under the finalised term sheet, commercial banks will provide a fresh loan of Rs617 billion at a markup of 10.50–11pc, calculated as KIBOR minus 0.90 basis points. This amount will be repaid by electricity consumers over six years via the DSS already embedded in their bills.

Banks will deduct the DSS amount at source when consumers pay their electricity bills, a mechanism expected to enhance the credit risk profile for lenders.

The official noted that the IMF has allowed banks to extend credit directly to CPPA without requiring a government guarantee. This latest tranche of Rs617 billion adds to an earlier Rs658 billion loan provided to the power sector through Power Holding Limited (PHL), which was backed by a sovereign guarantee. Together, the two loans comprise the Rs1.275 trillion figure being used to tackle the sector’s financial woes.