Pakistan’s power regulator has highlighted that electricity consumers of K-Electric are paying a debt servicing surcharge despite the utility having no role in the accumulation of circular debt, underlining what it described as an inequitable distribution of costs arising from sector-wide inefficiencies.
In its latest assessment, the National Electric Power Regulatory Authority said that although it determines consumer-end tariffs to fully cover the revenue requirements of the entire power supply chain, weak performance by public-sector distribution companies continues to undermine financial sustainability. As a result, consumers remain exposed to additional charges even where utilities meet their obligations.
Nepra noted that if regulator-approved tariffs were fully implemented and all sector entities achieved prescribed performance benchmarks, circular debt would not arise. However, persistent governance weaknesses, low recovery rates and high technical and commercial losses at several distribution companies have led to revenue shortfalls and recurring debt accumulation.
As of June 30, 2025, circular debt stood at around Rs1.614 trillion, down from Rs2.393 trillion a year earlier. The regulator cautioned that the reduction of roughly Rs780 billion did not reflect a structural improvement, noting that similar declines in the past were also driven by temporary financial measures rather than lasting reforms.
To service the cost of this borrowing, most electricity consumers, excluding certain protected domestic categories, are required to pay a Debt Servicing Surcharge of Rs3.23 per kilowatt-hour for several years. Nepra said the surcharge represents one of the largest components of end-user tariffs after capacity and energy purchase prices, effectively transferring the cost of inefficiencies to consumers.
The regulator reiterated that K-Electric, the country’s only private-sector distribution company, does not contribute to circular debt as it absorbs the financial impact of higher losses and lower recoveries internally. Despite this, KE consumers remain subject to the surcharge. During the year, KE collected and remitted Rs35.76 billion under the DSS to the government and the Central Power Purchasing Agency.
Nepra observed that KE’s transmission and distribution losses have declined steadily since its privatisation in 2005, falling from around 40% to below 15% by FY2024–25. While still above ideal benchmarks, the reduction was attributed to stronger governance and operational accountability following privatisation.
The regulator added that KE’s experience demonstrates the potential benefits of reduced government control, but stressed that sustainable improvement across the power sector would require comprehensive structural reforms across all distribution companies. Without such changes, Nepra said, there is little basis to expect lasting control over circular debt under the current framework.
