PMO steps in after NEPRA raises concerns over circular debt, capacity payments in State of Industry Report 

The Prime Minister’s Office has sought comments from the Power Division on the National Electric Power Regulatory Authority’s State of Industry Report 2025 and Annual Report 2024–25, following objections raised by the ministry over the regulator’s findings, Business Recorder reported. 

In its report, NEPRA stated that the power sector continues to face operational and governance issues affecting efficiency and limiting its contribution to economic development. The regulator said sector entities must operate under commercially binding agreements with defined roles, performance benchmarks and accountability mechanisms.

NEPRA maintained that entities should bear financial consequences of inefficiencies rather than passing costs on to consumers. It noted that consumers are paying around Rs233 billion under the Debt Servicing Surcharge, which it described as a cost arising from sector inefficiencies rather than routine operations.

The report stated that generation capacity operating under take-or-pay contracts remains underutilised, leading to continued capacity payments for idle plants. It also described the transmission network as constrained and underutilised, resulting in higher transmission tariffs and limiting dispatch of cheaper electricity under the Economic Merit Order.

On distribution, NEPRA said several government-owned DISCOs face governance issues, with transmission and distribution losses exceeding permitted levels and low recovery rates. Load-shedding linked to Aggregate Technical and Commercial losses, it said, has contributed to asset underutilisation and circular debt.

Responding to the report, Federal Minister for Power Sardar Awais Ahmed Khan Leghari rejected several of its conclusions at a press conference on January 18, 2026. He said the findings were based on outdated and insufficient data and did not reflect recent reforms.

The minister stated that the government has made it possible to service existing debt through the Debt Servicing Surcharge and that circular debt would be eliminated within five to six years under a six-year settlement plan. He disputed NEPRA’s claim of an Rs780 billion reduction in circular debt, saying the figure included Rs193 billion from reduced DISCO losses, Rs260 billion from renegotiated IPP contracts and around Rs300 billion linked to macroeconomic improvements.

On surplus capacity, Leghari acknowledged the presence of around 8,700 megawatts but said the government had reviewed take-or-pay and must-run contracts. He said negotiations with independent power producers resulted in termination or revision of several contracts and closure of inefficient plants, generating savings of billions of rupees.

He added that nearly 8,000 megawatts of expensive future projects, including 7,967 megawatts identified on merit, were cancelled, reducing projected surplus capacity and saving an estimated $17 billion in future costs.

The PMO has now asked the Power Division to formally respond to the regulator’s observations.