Electric Companies Face an Annual Increase of Over 600 Billion Rupees in Circular Debt

Pakistan’s electricity sector continues to struggle with the growing issue of circular debt, with an alarming annual increase of over 600 billion rupees.

This persistent rise in debt is not just a financial concern but also a significant challenge that impacts the country’s economy and energy sector.

The root cause of this issue lies in the financial inefficiencies within the energy sector.

Power distribution companies (DISCOs) owe large sums to power generation companies (GENCOs), which, in turn, struggle to pay their fuel suppliers.

The rising cost of fuel, particularly for thermal power generation, exacerbates the situation, leading to an unsustainable increase in operational costs.

As a result, electricity tariffs often fail to cover the true cost of generation, causing a significant financial gap.

This growing circular debt poses severe consequences for the entire energy supply chain.

Power generation companies are unable to maintain or upgrade their infrastructure due to lack of funds.

This not only affects the quality and reliability of electricity supply but also leads to energy shortages and increased load shedding.

The financial strain on electricity distribution companies results in delayed payments to both suppliers and employees, contributing to a negative cycle that becomes harder to break.

The government and the Pakistan Electric Power Company (PEPCO) have taken steps to address circular debt, such as introducing reforms, improving billing and collection systems, and enhancing energy efficiency.

However, the lack of proper financial discipline and delays in tariff adjustments continue to hinder significant progress.

The inability to reduce circular debt remains a persistent issue despite various efforts over the years.