Pakistan’s power sector grapples with Rs2.393 trillion circular debt

Pakistan’s power sector is grappling with systemic inefficiencies, mounting financial losses, and a ballooning circular debt, which reached Rs2.393 trillion by June 30, 2024, according to NEPRA’s State of the Industry Report 2023-24. 

The report identifies high transmission and distribution (T&D) losses and poor recovery of billed amounts as primary contributors to the crisis.

Ex-WAPDA distribution companies (DISCOs) added Rs591 billion to the circular debt in FY2023-24 due to excessive T&D losses and weak revenue collection. 

Despite being allocated Rs163.1 billion for network upgrades, DISCOs’ T&D losses rose to 18.31 percent, exceeding NEPRA’s target of 11.77 percent. This poor operational performance resulted in a financial shortfall of Rs314.5 billion.

The report also highlights widespread overbilling practices, which inflate T&D losses by creating false receivables. Consumers were burdened with a Circular Debt Surcharge of Rs3.23 per unit during FY2023-24, including Rs0.23 per unit imposed on protected consumers. 

DISCOs’ combined receivables grew to Rs2.017 trillion in 2023-24 from Rs1.727 trillion the previous year, with Rs1.095 trillion owed by defaulters. 

Additional inefficiencies, including the use of outdated power plants and operational constraints, compounded the sector’s financial strain. For instance, the Guddu 747 plant’s open-cycle operations caused a Rs7.9 billion loss, while the absence of its steam turbine added Rs86 billion to generation costs.

The government’s Anti-Theft Campaign, launched from September 2023 to September 2024, yielded Rs23.574 billion in recoveries — far below the sector’s outstanding dues. 

NEPRA called for urgent reforms, including granting greater autonomy to DISCOs, implementing bi-annual evaluations of boards and management, and addressing inefficiencies in billing and revenue collection.