The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) on Sunday said that despite repeated tariff increases through base annual tariffs, quarterly adjustments, and fuel cost adjustments, the circular debt has been standing at whopping level of Rs2.38 trillion in the first half of 2025 fiscal year, exceeding the government’s commitment to contain it.
The BMP Chairman and FPCCI former president Mian Anjum Nisar, referring to the data of the Ministry of Energy, observed that the circular debt has been standing at Rs2.384 trillion, as the power sector still suffered Rs158 billion in losses due to inefficiency, theft, and under-recoveries of bills. The data showed that distribution companies caused Rs106 billion in losses in the first half of the fiscal year due to inefficiency while more than half of the Rs158 billion losses were caused by just two power distribution companies HESCO and SEPCO.
The gains from monthly, quarterly, and yearly price increases were offset by losses incurred by power distribution companies and the accumulation of interest charges on loans taken by the Power Holding Company Limited. Energy experts said that the circular debt amounted to Rs2.384 trillion by the end of December, according to a report by the Power Division. The report further showed that after injecting Rs20 billion from the budget to reduce the stock of debt, there was a net reduction of Rs9 billion in circular debt compared to the Rs2.393 trillion level recorded in June 2024.
Despite an overall marginal reduction in debt levels, there was still a net increase of Rs11 billion in the circular debt flow after adjusting the impacts of price increases and budgetary injections. The International Monetary Fund had allowed an addition of Rs461 billion in the flow, but the Power Division performed much better than that. The primary challenge remained the losses caused by power distribution companies due to theft, inefficiency, and under-recovery of bills.
These companies also caused Rs52 billion in losses due to under-recoveries, which was Rs97 billion less than the comparative period.
The cumulative losses due to under-recoveries and inefficiency amounted to Rs158 billion. These were partially offset by gains from monthly and quarterly tariff adjustments and prior-year recoveries. The government collected an additional Rs67 billion from quarterly and monthly fuel adjustments and another Rs140 billion through other price adjustments, according to the report. Experts added that HESCO and SEPCO alone contributed Rs82 billion of the Rs158 billion losses, with an increase of Rs28 billion from last year. This clearly means that the government’s policies to appoint independent Boards of Directors at State-Owned Enterprises are yielding results, they said.
The government is also working to resolve issues in appointing independent Boards of Directors for HESCO and SEPCO to further reduce losses. Mian Anjum Nisar suggested that the circular debt actually increased by Rs463bn in the first seven months of the current fiscal year, averaging Rs66bn monthly, compared to Rs408bn in the same period last year. However, after accounting for stock payments worth Rs137bn from June 2023 to January 2024, the net increase in circular debt was Rs325bn.
The payables to power producers, which stood at Rs1.434tr at the beginning of FY2023, jumped to Rs1.77tr by the end of January 2023 and remained almost unchanged at Rs1.760tr by the end of January 2024 — a minuscule difference of Rs8bn. The stock of permanent debt guaranteed by the government of Pakistan remained unchanged at Rs765bn during the period. The increase in circular debt can be attributed to poor recoveries by distribution companies, high system losses, pending generation costs, non-payments by K-Electric, and interest charges, despite the government’s efforts to recover about Rs116bn from consumers in the previous year. The BMP Chairman said that the biggest increase of Rs284bn in circular debt was caused by distribution companies themselves in seven months of current year, up 19pc.
This included Rs198bn under-recoveries, which were 16.5pc higher than Rs170bn of seven months of last year. The government claimed the cost of Discos’ inefficiency losses at Rs86bn, which also increased by 25pc from Rs69bn last year. While the government has been claiming improvements, the IMF has put on record that power sector circular debt at Rs2.6tr has remained broadly flat since October 2023 after some slippage earlier in the fiscal year (due largely to lower-than expected recoveries following the large annual tariff rebasing in July 2023).
The government had conceded in writing to the IMF that Pakistan’s ongoing sustainability will be at risk without addressing energy sector viability. Therefore, it has also committed to continuing regular, timely, and automatic notifications of adjustments to natural gas and electricity tariffs in a manner that is consistent with full cost recovery and to reduce natural gas price disparities between regions and industries and within industries.