Power sector circular debt nears Rs1.9 trillion, rises by Rs200 billion in two months

Pakistan’s power sector circular debt has increased to Rs1.889 trillion by February 28, 2026, moving closer to Rs1.9 trillion and rising from Rs1.689 trillion recorded during July–December of the current fiscal year, according to data shared by Power Planning and Monitoring Company (PPMC) officials, Business Recorder reported. 

The increase of nearly Rs200 billion over two months has been attributed to lower recoveries and higher system losses compared to targets set by National Electric Power Regulatory Authority. The rise comes amid broader economic pressure and ongoing engagement with the International Monetary Fund, which has flagged circular debt as a risk to economic stability.

Liabilities linked to power projects under the China-Pakistan Economic Corridor have reached Rs543 billion, marking the highest level to date. The issue of Chinese Independent Power Producers is expected to be discussed during the upcoming visit of the deputy prime minister and foreign minister to Beijing.

The Power Division had committed to reducing circular debt to Rs1.614 trillion by the end of fiscal year 2025-26. However, revised projections indicate that the stock, which stood at Rs2.393 trillion on June 30, 2024, is now expected to decline to Rs1.346 trillion by June 2027, instead of the earlier target of Rs1.2 trillion.

To contain the buildup, the government approved a Technical Supplementary Grant of Rs200 billion, structured as equity investment in distribution companies to improve liquidity. Over the past six years, circular debt of Rs2.4 trillion has been managed through refinancing of Rs1.275 trillion at lower interest rates, serviced via a debt service surcharge of Rs3.23 per unit charged to consumers.

Recovery performance of distribution companies is projected to improve from 90 percent in June 2024 to 97.34 percent by June 2027, compared to an earlier target of 95 percent. Data up to January 31, 2026, shows that K-Electric has outstanding dues of Rs145 billion, with total liabilities reaching Rs351 billion, contributing to an increase in circular debt flow.

Unreleased subsidies during the period stood at negative Rs34 billion, while under-recoveries and inefficiencies of distribution companies improved by Rs45 billion compared to the same period last year. Payments against circular debt stock reached Rs224 billion, significantly higher than Rs24 billion in the corresponding period last year.

Officials indicated that despite the increase, circular debt flow remains within agreed limits and may stabilise by the end of the fiscal year. The IMF has reiterated the need for continued reforms to ensure financial discipline and long-term viability of the energy sector.

The issue is also scheduled for discussion at a public hearing of the regulator during deliberations on fuel charges adjustment for February 2026.