ECC approves Rs660bn guarantee to settle Rs1.2trn circular debt

November 07, 2025 (MLN): The Economic Coordination Committee (ECC), chaired by Senator Muhammad Aurangzeb, Federal Minister for Finance and Revenue, has approved a Government of Pakistan (GoP) guarantee worth Rs659.646 billion, according to a statement from the Power Division.

The guarantee will facilitate financing for the Rs1.225 trillion circular debt settlement in the power sector, marking a significant step toward addressing long-standing liquidity challenges in the energy chain.

The guarantee aims to enable Power Holding Limited (PHL) to clear its outstanding liabilities and overdue payments to Independent Power Producers (IPPs), a critical step toward restoring liquidity and confidence within the energy value chain.

As part of the decision, the ECC also authorized the Finance Division to issue a Letter of Comfort to support the debt arrangement, thereby ensuring timely execution of payment obligations.

The Committee further directed the Power Division to submit a detailed plan and timeline for the closure of PHL after completion of the settlement process.

PHL was established as a special purpose vehicle to raise funds for managing the sector’s cash flow shortfall, but its mounting obligations have long contributed to the circular debt pile-up, now exceeding Rs2.3 trillion across the energy chain.

The ECC’s decision is expected to improve liquidity for IPPs, particularly those facing delayed payments from the Central Power Purchasing Agency (CPPA-G), and to reduce interest costs on government-guaranteed loans.

It also represents a key component of the government’s broader circular debt management strategy, developed under the Power Sector Reforms Framework of the Prime Minister’s Task Force.

The ECC emphasized that the initiative aligns with Pakistan’s ongoing commitments to fiscal consolidation and energy market restructuring, with a focus on achieving financial sustainability, cost efficiency, and investor confidence in the power sector.

Copyright Mettis Link News