ISLAMABAD: The Power Division has informed the Prime Minister’s Office (PMO) that the power sector’s allocation for the current fiscal year may face a 23 percent reduction, slashing it from Rs 1.261 trillion to Rs 893 billion, according to official sources.
The clarification was issued in response to the PMO’s query about the current status and trajectory of circular debt in the energy sector.
Sources said the Power Division rejected reports suggesting a steep rise in circular debt, explaining that while circular debt increased by Rs 87 billion during July–August 2024, the same period in 2025 saw an improvement of Rs 107 billion, reflecting a net reduction of Rs 20 billion.
Despite operational challenges — particularly flood-related disruptions that affected recoveries and losses — the net addition to circular debt by September 2025 stood at Rs 109 billion, notably lower than the first quarter of the previous fiscal year.
The Power Division noted that the initial allocation for FY2025–26 was Rs 1.261 trillion, including Rs 182 billion from the Petroleum Development Levy (PDL). However, fiscal tightening led to the removal of PDL relief and routine subsidies, bringing the final allocation down to Rs 1.036 trillion, equivalent to 0.8 percent of GDP.
“Due to reduced allocations, the government could not pass on the full rebasing benefit of Rs 1.5 per unit to consumers. Instead, the tariff was raised by 55 paisa per unit,” officials said, adding that further cuts to Rs 893 billion are expected in the upcoming budget review.
Officials warned that although progress has been made in managing circular debt, fiscal constraints could hinder the achievement of financial and performance targets set for the sector.
Earlier, on November 5, a Power Division spokesperson refuted media reports claiming a Rs 79 billion increase in circular debt during the first quarter of FY2025–26, calling them “misleading.” The spokesperson clarified that similar trends in previous years had been offset by end-of-year adjustments, noting that the overall stock of circular debt had decreased by Rs 780 billion by the end of FY2024–25.
He attributed the short-term rise to “seasonal and operational factors” and emphasized that inefficiencies in DISCOs had declined by Rs 67 billion compared to last year, highlighting the government’s commitment to operational reform and fiscal discipline.
The spokesperson also stressed that temporary fluctuations in circular debt do not affect consumer-end tariffs, which are regulated through NEPRA’s standard mechanisms.
During a public hearing on November 6 regarding the Quarterly Tariff Adjustment (QTA) for July–September 2025–26, NEPRA Member (Technical) Rafique Ahmad Shaikh remarked that circular debt would persist unless structural reforms were implemented in the power sector’s governance and operational framework.
Story by Mushtaq Ghumman
