ISLAMABAD: Pakistan’s power sector has failed to meet its circular debt reduction target agreed with the International Monetary Fund (IMF), largely due to unpaid dues by K-Electric (KE) and the weak financial performance of several power distribution companies (Discos).
According to official sources, the government had committed to reducing the power sector’s circular debt stock to Rs1.614 trillion by June 30, 2026. However, the actual stock stood at approximately Rs1.835 trillion, leaving a shortfall of more than Rs220 billion despite adjustments made against K-Electric’s claims.
Officials attributed the gap primarily to KE’s failure to clear nearly Rs200 billion in outstanding payments for power purchases, coupled with lower-than-expected recoveries and financial weaknesses across several Discos.
One senior official, speaking on condition of anonymity, said the government was unable to achieve the target because the expected cash inflows did not materialise.
Despite the setback, the IMF’s latest Staff Report had earlier noted improvements in Pakistan’s power sector, citing lower international fuel prices, improved bill recoveries, reduced technical losses, and declining interest rates as factors that helped slow the accumulation of circular debt.
However, recent documents submitted by the Power Division to the Economic Coordination Committee (ECC) reveal that circular debt remained a major challenge, reaching Rs1.924 trillion by the end of May 2026, including Rs873 billion owed to banks under circular debt financing arrangements.
The Power Division informed the ECC that Rs893 billion had been allocated for power sector subsidies during FY2025-26. Of this amount, Rs257 billion was designated as government equity payments to government-owned power plants and Independent Power Producers (IPPs). While Rs105 billion had been released, the remaining Rs152 billion was still pending for disbursement to the Central Power Purchasing Agency-Guaranteed (CPPA-G) before the close of the fiscal year.
Officials stressed that the requested Technical Supplementary Grant (TSG) did not require additional fiscal resources but was intended to utilise already allocated funds to support the government’s Circular Debt Management Plan (CDMP) and fulfil commitments made under the IMF programme.
The Power Division also highlighted that K-Electric’s outstanding liabilities had significantly contributed to the increase in circular debt. Since tariff-related matters involving KE remain under judicial review, the Division proposed reallocating surplus funds earmarked under K-Electric’s Tariff Differential Subsidy (TDS) to address broader cash flow requirements within the power sector.
Accordingly, the Division recommended re-appropriating Rs97.649 billion from the KE subsidy allocation for release before the end of June. The proposal received support from both CPPA-G and the Power Planning and Monitoring Company (PPMC), which emphasized the importance of releasing the full budgeted subsidy to ease financial pressures across the sector.
The ECC was asked to approve:
- A Rs152 billion Technical Supplementary Grant for immediate release to CPPA-G as government equity in Discos.
- The reallocation of Rs97.649 billion from K-Electric’s Tariff Differential Subsidy to the Inter-Disco Tariff Differential account.
After deliberations, the ECC partially approved the proposal by authorising the release of approximately Rs54.45 billion after adjusting the available subsidy allocation.
During the meeting, the ECC directed the Power Division to actively pursue legal proceedings against K-Electric following a High Court decision, in consultation with the Ministry of Law and Justice and the Attorney General’s Office. Officials expressed optimism that the case could be resolved during the current month.
The government continues to face pressure to improve the financial performance of distribution companies, recover outstanding receivables, and contain circular debt growth as part of its broader power sector reform agenda under the IMF-supported economic programme.
Story by Mushtaq Ghumman
