Pakistan’s power sector circular debt increased by Rs34 billion to Rs1.675 trillion during fiscal year 2025-26, while liabilities in the gas sector rose by Rs344 billion to Rs3.631 trillion, according to information presented by the Power Division and Petroleum Division before the National Assembly. The figures, covering the period ending June 30, 2026, highlight the continuing financial pressures facing the country’s energy sector, where unpaid bills, financing costs and accumulated surcharges contribute to rising obligations. The government has introduced contractual changes and secured a substantial financing facility to address outstanding electricity sector payments, while gas sector liabilities have continued to expand.
According to the Power Division, outstanding liabilities in the electricity sector increased from Rs1.641 trillion at the end of June 2025 to Rs1.675 trillion by June 30, 2026. The division identified unpaid bills for electricity supplied to K-Electric through the national grid as the principal factor behind the increase. Recovery of these outstanding payments remains linked to a tariff dispute involving K-Electric that is currently before a court. The division informed lawmakers that a decision in the case was expected, although the timing and financial implications of the outcome were not specified in the reported information. The unresolved dispute has complicated the recovery of dues and contributed to the pressure on the power sector’s financial position.
To limit further accumulation of circular debt, the government has pursued changes to contractual arrangements with independent power producers (IPPs). These measures include terminating agreements with costly power producers and replacing the existing take-or-pay framework with a hybrid take-and-pay model. Under a take-or-pay arrangement, payments may be required for contracted capacity regardless of the amount of electricity actually used, subject to the relevant contractual terms. A hybrid take-and-pay approach is intended to modify these payment obligations. The government has also negotiated waivers of late payment interest, reduced interest rates applicable to delayed payments under future contracts and introduced limits on adjustments linked to rupee depreciation and annual inflation in electricity tariffs.
A major component of the government’s circular debt management strategy has been a Rs1.225 trillion financing facility secured from commercial banks for six years at an interest rate of KIBOR minus 0.9%. The facility was arranged to refinance existing borrowing and address overdue payments within the power sector. Of the total amount, Rs659 billion was used to refinance previously contracted, higher-cost borrowing carrying interest rates of up to KIBOR plus 1%. The remaining funds were directed towards settling overdue payments to independent power producers, subject to agreements that included waivers of late payment interest. The refinancing arrangement is intended to reduce financing costs and help manage outstanding obligations, although its longer-term impact will depend on the government’s ability to control new arrears and improve payment recovery.
The gas sector recorded a larger increase in its outstanding liabilities during the same fiscal year. The Petroleum Division informed the National Assembly that gas sector circular debt rose from Rs3.288 trillion on June 30, 2025, to Rs3.631 trillion by the end of June 2026. This represented an increase of Rs344 billion over the year. Of the total outstanding liabilities, Rs1.783 trillion consisted of accumulated late payment surcharges, indicating the substantial contribution of financing-related charges to the sector’s overall debt burden. The reported figures underline the financial challenges facing the gas supply chain and the importance of addressing delayed payments and the accumulation of additional charges.
The increase in gas sector liabilities also raises questions about the sustainability of payment arrangements across Pakistan’s broader energy industry. While the reported information identifies late payment surcharges as a significant component of outstanding liabilities, it does not provide a complete breakdown of the remaining amount by individual company, source of arrears or operational cause. Nevertheless, the rise in total liabilities indicates that the sector continues to face substantial financial obligations. Addressing these pressures requires attention to payment recovery, contractual commitments and the costs associated with delayed settlements, alongside measures that improve the financial management of energy supply and distribution.
The Petroleum Division also provided information on Pakistan’s recoverable oil and natural gas resources and cumulative production. According to the figures presented to lawmakers, the country’s total recoverable natural gas reserves stood at 68,803 billion cubic feet, while reported gas production amounted to 48,140 billion cubic feet. Recoverable oil reserves were reported at 1,378 million barrels, compared with crude oil production of 1,102 million barrels. These figures provide additional context on the country’s domestic energy resources, although the reported totals alone do not establish future production levels, the pace of reserve replacement or the extent to which domestic supplies can meet national demand.
The latest figures show that both electricity and gas sector liabilities remain significant fiscal and financial concerns for Pakistan. The government’s Rs1.225 trillion refinancing facility and revisions to power purchase arrangements represent efforts to manage electricity sector obligations and reduce financing costs. However, the rise in power circular debt and the more substantial increase in gas liabilities demonstrate that controlling accumulated arrears remains an ongoing challenge. The effectiveness of these measures will depend on preventing fresh payment delays, resolving outstanding disputes, managing financing charges and improving the financial position of energy sector entities.
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