ISLAMABAD: The Pakistan Institute of Development Economics (PIDE) has cautioned that Pakistan’s power sector woes have evolved into a profound socioeconomic imbalance, with the poorest households bearing the heaviest burden of systemic inefficiencies.
Authored by Dr. Rubina Ilyas, Research Economist at PIDE, the study titled “Circular Debt and Electricity Tariffs: Unequal Burdens Across Household Quintiles in Pakistan” reveals how the circular debt—now surpassing Rs2.6 trillion—has fueled steep, regressive electricity tariffs that disproportionately impact low-income groups.
The report warns that without efficiency-driven reforms, improved governance, and a more progressive tariff design, circular debt will continue to entrench economic injustice and widen energy poverty.
Despite Pakistan’s installed generation capacity exceeding 45,000 MW by mid-2025, the sector remains financially distressed. Power Distribution Companies (DISCOs) suffer from 16–17 percent transmission and distribution losses, while bill recovery rates vary sharply—from 95 percent in IESCO and LESCO to just 60 percent in PESCO and QESCO.
These inefficiencies, along with delayed subsidies and rising capacity payments, have locked the sector into a cycle of debt accumulation, tariff hikes, and fiscal instability. The study notes that the national average tariff has nearly tripled—from Rs12.5 per kWh in 2015 to Rs34.45 per unit in 2025. Notably, 30–35 percent of this tariff consists of non-energy financial adjustments, including surcharges and debt repayments.
“Every rupee of circular debt is being passed on to consumers through uniform surcharges, effectively making the poor pay for inefficiencies they did not create,” Dr. Ilyas stated. For households in the bottom income quintile—consuming up to 100 kWh per month—the tariff has increased from Rs11.72 per unit in 2018 to Rs22.44 per unit in 2025, with almost 37 percent stemming from circular-debt-related surcharges.
Middle-income families (Q3), using 250–300 units monthly, now face tariffs of Rs34.2 per unit, while higher-income households (Q5), consuming over 700 units, pay Rs46.5 per unit. However, the share of non-energy costs within total bills declines significantly—from 60 percent for the poorest to 30 percent for the richest—highlighting the regressive structure of tariff recovery.
The study further reveals that the poorest 40 percent of households (Q1–Q2) contribute 55–60 percent of the total Debt Servicing Surcharge (DSS), despite earning less than 30 percent of national income. In contrast, the richest 20 percent, earning nearly 45 percent of the country’s income, pay just 15–20 percent of DSS.
The findings underscore that Pakistan’s circular debt challenge is not merely a financial crisis—it is a deeply rooted distributional injustice built into the electricity tariff system.
Story by Abdul Rasheed Azad
