Pakistan’s circular debt rises by Rs345 billion due to distribution losses, under-recovery

Pakistan’s circular debt stood at Rs2,655 billion in May, rising by Rs345 billion from June last year, data from the Ministry of Energy showed.

This indicates an average monthly increase of Rs31 billion over 11 months of fiscal year 2023-2024.

A circular debt is a cash shortfall across the power sector. It is accrued when the power purchaser fails to pay the power producer.

The most significant contribution to the increase in circular debt came from the under-recoveries of distribution companies, amounting to Rs279 billion. Distribution losses from these companies added another Rs230 billion.

Pending quarterly tariff adjustments (QTA) and fuel charge adjustments (FCA) amounted to Rs176 billion.

If electricity produced during a given month is more expensive or cheaper than the amount charged per unit in that month, the difference is later adjusted by the National Electric Power Regulatory Authority through the QTA and FCA.

Additionally, interest charges from Power Holding Limited and Independent Power Plants (IPPs) added Rs138 billion to the circular debt.

Government payments of Rs284 billion and prior-year adjustments totaling Rs155 billion helped limit the increase in circular debt to Rs345 billion.

Despite these measures, the figure continues to rise even with tariff increases, which is an alarming situation.

The energy minister has previously said that distribution companies would be privatized in a bid to find a permanent resolution to the circular debt issue.