Finance Division Rejects PSDP Funding Request for Power-Sector Loan Reduction

The Finance Division has declined the Power Division’s request to use Public Sector Development Programme (PSDP) funds to reduce power-sector loans, citing fiscal constraints. Meanwhile, the Economic Coordination Committee (ECC) reviewed key tariff rationalisation agreements in which PAEC and government power plants have agreed to waive late payment interest exceeding Rs116 billion  a major step aimed at lowering future electricity tariffs.

Pakistan’s power sector has been burdened by mounting circular debt, delayed payments, and high-capacity charges. To manage this, the government has been working on tariff rationalisation and debt restructuring frameworks involving nuclear and thermal power plants. This latest development comes as part of ongoing efforts to stabilise the sector and reduce consumer-side tariff pressures.

The Finance Division informed the ECC that PSDP funds cannot be used this year due to limited fiscal space, advising the Power Division to revise and resubmit its proposal after consultation with the Planning Ministry and Economic Affairs Division.

During the ECC meeting, officials highlighted that the Pakistan Atomic Energy Commission (PAEC) and several government-owned power plants have agreed to waive all late payment interest claims up to December 31, 2024, amounting to Rs116.83 billion.

“Fiscal constraints do not allow PSDP allocation for loan reduction at this time,” the Finance Division stated, urging the Power Division to explore other channels.

This waiver was negotiated under a broader tariff rationalisation framework recommended by the Task Force on Structural Reforms, developed to reduce nuclear power tariffs and improve liquidity in the system.

Under the agreed mechanism:

• Power purchaser dues worth Rs340.9 billion (as of Dec 31, 2024) will be cleared.
• Delayed payment charges from Jan 1, 2025 will be revised to Kibor (3-month) + 1%.
• Similar waivers were secured from GPPs including Haveli Bahadur Shah, Balloki, and Quaid-e-Azam Thermal Power Plant.

The ECC was informed that:

• Rs614.92 billion has already been disbursed to GPPs and nuclear plants.
• Remaining liabilities total Rs140 billion (as of July 31, 2025).
• Future payments will be handled through the circular debt financing facility.
• CPPA-G has been authorised to use part of this facility to retire Power Holding Limited’s debt of Rs683.253 billion.

Finally, the ECC approved the MoUs with commercial banks and authorised CPPA-G to amend contracts, settle dues, and facilitate PAEC’s filings before Nepra for tariff adjustments.

It also directed that all power and petroleum sector matters must be routed through the Cabinet Committee on Energy to ensure coordinated policymaking.