The government approved a new Circular Debt Management Plan, projecting that the costs from electricity theft and low bill recoveries will reach an alarming Rs637 billion this fiscal year 2024-25.Â
Despite recent hikes in electricity prices and an allocation of Rs1.2 trillion in subsidies, the circular debt is expected to grow by another Rs36 billion, reaching Rs2.429 trillion by June 2025, according to the Economic Coordination Committee (ECC) of the Cabinet.
These figures could place an even greater financial burden on consumers, who have already seen a 51% increase in electricity prices, driving up their bills by Rs302 billion this fiscal year.
The Ministry of Finance allocated Rs1.229 trillion to cover power subsidies, with Rs580 billion earmarked to reduce circular debt. However, this objective remains elusive as debt is anticipated to climb due to the Ministry of Energy’s persistent issues, including line losses and under-recoveries.Â
The finance ministry has expressed doubts about the plan’s feasibility, especially given that projected losses from low bill recoveries are expected to rise by 33%, from Rs315 billion last year to Rs419 billion this year.
The plan permits distribution companies to operate with 90% recoveries and line losses of up to 17.3%—well above the National Electric Power Regulatory Authority’s (Nepra) 11.4% limit. Additionally, costs are expected to mount by Rs1.08 trillion under a ‘business-as-usual’ approach, with the government relying heavily on price hikes and subsidies to plug the gap.
The government’s assumptions also include an exchange rate of Rs300 per dollar, despite a current rate of Rs278, and an interest rate of 18.44% even though the State Bank of Pakistan recently lowered rates to around 16%. The ECC was informed that last year’s circular debt surged by Rs83 billion due to “distribution companies’ under-recoveries, line losses, and deferred generation costs.”Â
The debt, which stood at Rs2.393 trillion as of June 2024, has since increased and is forecast to rise further to Rs2.429 trillion by mid-2025, showing a persistent upward trend despite the new plan.
