Circular Debt Increases by Rs61 Billion During FY26
Pakistan’s power sector circular debt climbed to Rs1.675 trillion by the end of June 2026, marking a 4 percent increase from Rs1.614 trillion recorded a year earlier.
The debt stock increased by Rs61 billion during fiscal year 2025-26, reversing the sharp Rs780 billion reduction reported during the previous fiscal year. The figures were compiled by Arif Habib Limited Research using Ministry of Energy data.
The latest figures show that payables to power producers stood at Rs784 billion in June 2026. This was 9 percent lower than Rs861 billion in June 2025.
GENCOs’ outstanding payments to fuel suppliers also declined slightly. These liabilities stood at Rs90 billion, compared with Rs93 billion a year earlier.
Meanwhile, Rs801 billion was recorded under the newly introduced circular debt financing category.
The previous Rs660 billion amount parked in Power Holding Limited no longer appeared as a separate item after being shifted into the new financing arrangement.
Together, these components brought total circular debt to Rs1.675 trillion at the end of June.
DISCO Losses and K-Electric Non-Payment Drive Debt Build-Up
Weak performance by electricity distribution companies remained a major contributor to the circular debt problem.
DISCO-related underperformance contributed around Rs326 billion during FY26.
Of this amount, losses and operational inefficiencies contributed Rs262 billion, broadly unchanged from Rs265 billion during the previous year.
However, there was a notable improvement in electricity bill recoveries.
DISCO under-recoveries dropped to Rs64 billion, compared with Rs132 billion during the same period a year earlier.
This suggests that collection performance improved, even though distribution losses continued to place significant pressure on the sector.
Another major contributor was the non-payment of dues by K-Electric.
K-Electric-related non-payment added Rs194 billion to circular debt during FY26.
This was dramatically higher than the Rs4 billion recorded under the same category in the previous fiscal year.
Other adjustments, including previous-year recoveries, added another Rs75 billion.
At the same time, unbudgeted and unclaimed subsidies reduced the build-up by Rs98 billion.
Interest charges associated with Power Holding Limited and independent power producer debt added Rs14 billion.
Loan principal repayments helped reduce the pressure by Rs129 billion.
Pending generation costs under quarterly tariff adjustments and fuel cost adjustments reduced the circular debt build-up by another Rs20 billion.
After accounting for these factors, the gross circular debt build-up reached Rs364 billion during FY26.
That was sharply higher than the Rs45 billion gross build-up recorded during the comparable period a year earlier.
Rs302 Billion Paid to IPPs as Government Restructures Circular Debt
Payments to independent power producers provided the main offset against the new debt accumulated during FY26.
Stock payments to IPPs reached Rs302 billion during the year.
These payments helped improve liquidity in the power sector and reduced the impact of the Rs364 billion gross debt build-up.
However, IPP stock payments were 62 percent lower than the Rs801 billion paid during the previous comparable period.
During the previous year, the government had also made Rs24 billion in Power Holding Limited principal repayments.
No such PHL principal repayments or unpaid markup payments were recorded under the latest FY26 breakdown.
As a result, total payments through available fiscal space stood at Rs302 billion.
After deducting these payments from the Rs364 billion gross build-up, circular debt recorded a net increase of Rs61 billion during FY26.
The government has also been restructuring legacy circular debt through bank financing.
In December 2025, a new circular debt financing line of Rs694 billion was introduced.
This involved transferring Rs660 billion previously parked in Power Holding Limited into the bank financing structure.
By June 2026, around Rs129 billion of the facility had been repaid.
The refinancing arrangement uses lower-cost financing linked to KIBOR minus 0.9 percent, part of the government’s wider strategy to replace expensive legacy power-sector liabilities with cheaper financing.
The latest numbers show that Pakistan has managed to improve electricity recoveries and reduce some producer liabilities.
However, persistent distribution losses and rising K-Electric arrears continue to create new pressure on the sector.
Containing fresh debt accumulation will remain critical as the government seeks to improve the financial sustainability of Pakistan’s electricity system.
