Power sector circular debt likely to increase by Rs735 billion

ISLAMABAD (Mudassar Ali Rana) – The power sector is facing a potential increase in circular debt by Rs735 billion during the current fiscal year, raising concerns about the financial stability of the sector.

Sources indicate that the circular debt could rise from Rs1,615 trillion to around Rs2,300 billion, though steps like rebasing, reducing distribution losses, and improving recoveries are expected to reduce the increase by Rs212 billion.

To address the remaining circular debt of Rs522 billion, it is anticipated that Rs 120 billion will be allocated for principal repayments. Additionally, Rs 400 billion will be paid to government power plants and Independent Power Producers (IPPs) to clear the outstanding stock.

Under the conditions set by the International Monetary Fund (IMF), Pakistan is required to ensure zero inflow in the power sector circular debt.

As part of the Circular Debt Management Plan, Rs55 billion is expected to be recovered annually through rebasing measures.

Further actions to reduce losses from electricity distribution companies are expected to generate Rs18 billion, while improving recoveries will add another Rs121 billion.

Sources revealed that the growing circular debt in Pakistan's power sector is exacerbating electricity shortages, slowing economic activity, and placing significant financial pressure on the energy supply chain.

Key factors contributing to the debt accumulation include poor recovery rates from distribution companies (DISCOs), higher-than-expected line losses, delayed or unpaid subsidies, and outstanding generation payments.

Experts stress that addressing these challenges will require timely tariff adjustments and the prompt payment of budgeted subsidies to mitigate further debt inflows throughout FY2025-26.

Despite multiple attempts to contact the Ministry of Energy for comment, no response was received by the time of filing this report.