Pakistan’s power sector circular debt increased by Rs61 billion during FY2025-26, reaching Rs1.675 trillion by June 30, 2026, compared with Rs1.614 trillion recorded a year earlier, according to official data. The latest figures show that inefficiencies within power distribution companies (Discos), weak bill recovery and outstanding payments across different parts of the electricity supply chain continued to contribute to the accumulation of circular debt during the fiscal year.
Operational inefficiencies at Discos remained the largest structural contributor to the buildup. According to data from the Power Division, Disco operational inefficiencies added Rs262 billion to circular debt during FY26. The contribution was only marginally lower than the Rs265 billion recorded in the previous fiscal year, indicating that distribution-level losses continued to exert significant pressure on the power sector’s financial position.
Weak bill recoveries by Discos contributed another Rs64 billion to the circular debt during FY26. This represented a considerable improvement from the Rs132 billion added through weak recoveries during FY25. Despite the reduction, the amount remained a significant contributor to the sector’s overall debt accumulation.
K-Electric’s non-payment also emerged as a major component of the circular debt flow during the year, contributing Rs194 billion. The utility’s outstanding receivables reached Rs421 billion as of June 2026. These receivables comprised Rs197 billion in principal and Rs224 billion in accumulated markup.
Another Rs63 billion was attributed to pending invoices from the Water and Power Development Authority (Wapda). The outstanding amount was linked to amendments in power purchase agreements, adding another layer of financial pressure within the electricity sector.
At the same time, interest payments owed to independent power producers, Power Holding Limited and circular-debt financing declined substantially during FY26. These payments amounted to Rs14 billion during the year, compared with Rs58 billion in FY25. The reduction represented a significant decline in this component of the circular debt flow.
Other miscellaneous adjustments contributed Rs75 billion during the year. Combined with the contributions from Disco inefficiencies, weak recoveries, K-Electric’s non-payment and pending Wapda invoices, these factors resulted in substantial gross additions to the circular debt stock.
Overall, gross additions to circular debt reached Rs609 billion during FY26. The government and power sector authorities recorded several reductions against this amount, limiting the net increase in the accumulated debt stock.
The reductions amounted to Rs247 billion and included Rs98 billion in unclaimed subsidies, Rs129 billion in loan principal repayments and Rs20 billion related to pending generation cost adjustments. After these reductions were accounted for, the circular debt flow for the year stood at Rs364 billion.
The government subsequently provided Rs302 billion in subsidy payments to help reduce the accumulated circular debt stock. The subsidy injection partially offset the net flow generated during FY26, although the overall stock still increased by Rs61 billion over the fiscal year.
The composition of the circular debt as of June 30, 2026, also highlights the scale of outstanding liabilities across the power supply chain. Amounts owed to power producers stood at Rs784 billion at the end of FY26.
Generation companies, or Gencos, owed another Rs90 billion to fuel suppliers. These outstanding payments represent liabilities further up the electricity generation and fuel supply chain and contribute to the broader circular debt mechanism.
Circular-debt financing accounted for Rs801 billion of the overall balance as of June 30, 2026. This component represents financing associated with the accumulated obligations within the power sector and remained one of the largest portions of the total circular debt stock.
The latest figures indicate that while some components of the circular debt flow improved during FY26, particularly weak recoveries and financing related interest payments, persistent operational inefficiencies at Discos continued to generate substantial additional liabilities.
The Rs262 billion contribution from Disco operational inefficiencies was more than four times the Rs64 billion impact from weak recoveries during the year. This places distribution-level inefficiencies among the central issues affecting the financial position of Pakistan’s electricity sector.
The decline in weak recovery related additions from Rs132 billion in FY25 to Rs64 billion in FY26 represents progress in this area. However, the relatively unchanged contribution from operational inefficiencies shows that distribution losses and related issues continued to require attention.
Overall, Pakistan’s power sector circular debt stood at Rs1.675 trillion at the end of FY26, up Rs61 billion from the previous year. With Rs609 billion in gross additions offset by Rs247 billion in reductions and Rs302 billion in government subsidy payments, the sector continued to carry substantial accumulated obligations across power producers, Gencos, fuel suppliers and circular-debt financing arrangements.
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