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Aftab Maken
ISLAMABAD: Pakistan’s power sector circular debt rose by Rs75 billion in the first half of FY26 (July-December 2025), reaching Rs1.689 trillion—a 4.65% increase despite government capital injections of Rs780 billion and Rs1.225 trillion in commercial borrowing at lower rates during FY25. At the end of June 2025, the debt stood at Rs 1.614 trillion, down sharply from Rs 2.384 trillion a year earlier, thanks to those interventions. However, fresh data from the power division reveals persistent challenges, including rising inefficiencies and unpaid dues.
The debt surged Rs 79 billion in the first quarter to Rs1.693 trillion by September 30, 2025, before a modest Rs4 billion dip to Rs1.689 trillion in October-December, driven by Rs224 billion in stock payments. This follows Rs801 billion in payments during FY25. Without these infusions, the debt would have ballooned further, as system inefficiencies swelled by Rs101 billion over six months, and non-payments from Karachi utility K-Electric jumped to Rs115 billion—up from just Rs12 billion in the first half of FY24.
Total receivables from K-Electric hit Rs329 billion by December 31, including Rs136 billion in principal and Rs193 billion in markup. Payables to power producers climbed from Rs861 billion at FY25’s end to Rs903 billion, with Rs694 billion financed in the first half. Positive notes include a Rs42 billion drop in unreleased subsidies and interest charges shrinking to Rs10 billion from Rs56 billion year-on-year, easing burdens on the Power Holding Company and independent power producers (IPPs).
Officials highlight seasonal factors behind the July-November spike of Rs224 billion, which December’s payments reversed, yielding a net flow under Rs80 billion for the half-year. A power division spokesperson stressed that the Rs1.225 trillion bank borrowing targets expensive debt replacement via the Power Holding Company Limited (PHCL), with repayment spread over five to six years through a debt servicing surcharge. “This isn’t new debt—it’s refinancing on better terms,” the spokesperson noted.
The FY25 decline to Rs1.614 trillion stemmed from improved Disco efficiencies (Rs193 billion reduction vs. FY24), stronger macroeconomics, and waived late-payment interest after IPP negotiations. FY26 started at Rs 1.614 trillion, far below Rs 2.467 trillion the prior year. Prior-year consumer adjustments flipped from a Rs140 billion cut in H1 FY24 to a Rs95 billion rise in H1 FY25.
Looking ahead, the spokesperson remains optimistic: “Circular debt will be fully contained by FY26’s end, with no net addition, aligning with historical trends where seasonal swings normalize later.” The six-year Rs1.225 trillion settlement plan has received its first tranche, promising tariff-neutral relief for consumers amid ongoing reforms.
Yet, critics question the sustainability, pointing to recurring inefficiencies and K-Electric’s ballooning dues as red flags. With power sector woes fueling inflation and tariff hikes, containment efforts face scrutiny as Pakistan navigates energy reforms.
