PSO to gain most from new power circular debt deal: report

Pakistan’s national oil company is poised to emerge as the largest beneficiary of the government’s recently approved plan to refinance unpaid dues owed to power producers and fuel suppliers.

Earlier this week, the government restructured a record PKR 1.23 trillion circular debt, a chronic issue of cyclical overdue payments that has plagued the country’s power sector.

The deal comprises PKR 659.6 billion in loan restructuring, as well as PKR 565.4 billion in fresh financing to settle overdue government payments to power producers. This will not only allow the government to negotiate better terms but also generate substantial fiscal savings.

The Pakistan State Oil (PSO) is poised to emerge as the largest beneficiary of the government’s circular debt resolution plan, said a report by Taurus Securities.

As part of the plan, PKR 220 billion is expected to be disbursed to regasified liquefied natural gas-based power plants (RLNG), directly benefiting PSO, the report said.

PSO supplies imported LNG to these power producers through the gas utility company Sui Northern Gas Pipelines Limited (SNGPL).

Massive receivables on PSO’s books

According to data as of June 2024, SNGPL’s payable to PSO stood at PKR 311 billion, while PSO’s receivables from RLNG-based power companies, National Power Parks Management Company – which owns and operates two RLNG power plants with Haveli Bahadur Shah and Balloki Power Plant – Quaid e Azam Thermal Power (Pvt) Limited and Nandipur totaled around PKR 105 billion.

As of March 2025, PSO’s own books recorded PKR 278 billion in dues from SNGPL.

This means the upcoming settlement could significantly improve PSO’s liquidity position, enabling substantial receipts and easing pressure on its balance sheet.

Debt reduction and financial relief

PSO has already begun deleveraging, reducing short-term debt from PKR 403 billion in FY24 to PKR 356 billion in FY25. This allowed a PKR 19 billion year-on-year reduction in finance costs.

The anticipated cash inflows from the loan will further accelerate debt repayments, reduce reliance on high-cost borrowing, and free up cash for operational and strategic needs.

While management is expected to prioritize debt reduction over dividends, analysts believe the lower finance costs and improved working capital will enhance profitability and long-term financial resilience.

HUBCO also set to gain a significantly

Among power-sector players, Hub Power Company (HUBCO) is positioned as a key beneficiary through its subsidiaries and associates operating under the China-Pakistan Economic Corridor (CPEC) umbrella.

As per the report, China Power Hub Generation Company (CPHGC) is owed PKR 53 billion, Thar Energy Ltd (TEL) is due PKR 12 billion, and ThalNova Power (TNPTL) is owed PKR 11 billion.

In total, HUBCO’s stake-adjusted overdue receivables amount to PKR 76 billion. With TEL and TNPTL expected to announce their first-ever dividends in Q2FY26, the inflows from the debt settlement are likely to boost payout potential and unlock funds for strategic redeployment, including the BYD auto manufacturing joint venture.

Other listed entities also stand to benefit from the circular debt clearance, including Lucky Cement, expected to recover PKR 10.8 billion and Thal Limited, around PKR 11 billion. These inflows could strengthen balance sheets, reduce leverage, and potentially improve shareholder returns.

Pending reforms

While the circular debt restructuring package offers near-term liquidity relief, Taurus Securities cautions that structural reforms are essential to break the recurring cycle of circular debt. A similar debt clearance of PKR 500 billion was done in 2013, yet the issue has resurfaced with nearly a trillion rupees in arrears once again in 2025.

According to the report, reforms are needed to:

1. Reduce line losses and power theft
2. Renegotiate RLNG supply contracts
3. Shift of generation plants to take-and-pay mode
4. Restructure loans of Chinese power producers

Breakdown of fresh financing allocations

As per the report, out of the PKR 565 billion in fresh financing – expected to be received by the government from banks – PKR 280 billion will go to nuclear power plants, PKR 220 billion to RLNG plants, PKR 60 billion to coal-based plants, and PKR 5 billion to generation companies or GENCOs.

These disbursements aim to clear critical payables and ease liquidity stress across the power value chain. The loan will be repaid through the PKR 3.23/unit surcharge, which is already in effect, ensuring no additional burden on electricity consumers.