Circular debt rises again

Published January 27, 2026
Despite capital injections and commercial borrowing, the power sector’s circular debt rose Rs75bn to Rs1.699tr in July-December FY26.—Dawn/file
Despite capital injections and commercial borrowing, the power sector’s circular debt rose Rs75bn to Rs1.699tr in July-December FY26.—Dawn/file

ISLAMABAD: Despite capital injections and over Rs1.225 trillion commercial borrowing last fiscal year, the power sector circular debt increased by Rs75 billion in the first half (July-December) of the current fiscal year to Rs1.689 trillion, showing a 4.65 per cent growth in six months.

At the close of last fiscal year on June 30, 2025, the circular debt had been reported at Rs1.614tr, scaled down by Rs780bn through capital injections and around Rs1.225tr commercial borrowing purportedly at cheaper markup rates. It had gone up by Rs79bn in the first quarter ending September 30, 2025, to Rs1.693tr.

Official data compiled by the power division suggested a relatively improved performance in the second quarter (October-December 2025) as circular debt inched down by Rs4bn to Rs1.689tr, chiefly because of stock payments worth Rs224bn. This is on top of Rs801bn stock payments of circular debt during FY25.

Otherwise, performance indicators showed a mixed trend, with system inefficiencies increasing by Rs101bn over six months and non-payments from K-Electric rising to Rs115bn. As a consequence, the total circular debt stock dropped to Rs1.689tr by December 31, compared with Rs2.384tr in the same period last year, following a capital injection of Rs780bn. The decline was partly reversed, with almost Rs85bn added to Rs695bn.

The data showed that payables to power producers, which stood at Rs861bn at the close of FY25, increased again to Rs903bn in the following six months. Circular debt financing in the first half of the current year amounted to Rs694bn.

The containment of circular debt was also contributed to by a Rs42bn decrease in budgeted but unreleased subsidies, while interest charges dropped to Rs10bn when compared to Rs56bn of the comparable period last year on account of power holding company debts and IPPs’ dues.

Prior year adjustments from consumers were reduced by Rs140bn in the first half of FY2024 but increased by Rs95bn in the first half of FY25. The non-payments from K-Electric, which had amounted to Rs12 in the first half of FY24, increased to Rs115bn this year, as the power division reported total receivables from the Karachi-based utility to Rs329bn as of December 31, 2025, including a principal amount of Rs136bn and a Rs193bn markup.

It may be noted that FY26 began with Rs1.614tr, compared with Rs2.467tr in the same period a year earlier. The payables to power producers had increased to Rs944bn at the close of September, which were curtailed to Rs903bn in the following quarter.

The circular debt had increased by Rs224bn at the close of the first five months (July-November 2025), but was brought down in December through a stock payment of Rs224bn. A power division spokesperson said the debt stock at the close of June 2025 should not be compared with its stock at the end of November 2025.

He said the commercial borrowing from banks worth Rs1.225tr was primarily meant for PHPL’s expensive debt replacement with a much cheaper loan, and that too with a five- to six-year plan to repay the loan itself through a debt servicing surcharge.

The spokesperson explained that the increase during the July-November period was primarily attributable to seasonal factors that influence monthly circular debt movements and were typically reversed by the end of the fiscal year on half-yearly payments. As such, circular debt flow declined in December 25, “resulting in a net circular debt flow of less than Rs80bn for the period from July-December25”.

He said the circular debt declined significantly during FY25 to Rs1.614tr through improvements in Discos’ operational efficiencies, strengthening of macroeconomic variables, and the waiver of late payment interest following successful negotiations with power producers.

“It is expected that by the close of the current fiscal year, the Circular Debt position will be fully contained, with no net addition to the overall stock. This expectation is consistent with historical trends, wherein seasonal fluctuations typically normalise in the latter part of the fiscal year”, the spokesperson said.

He said the seasonal variations in circular debt flow had no implications for consumer-end electricity tariffs and claimed that Disco’s inefficiencies in FY25 were reduced by Rs193bn when compared to FY24.

The power division also said that the Rs1.225 trillion circular debt settlement plan was to be implemented over a six-year period, during which the existing circular debt stock would be refinanced on favourable terms. To date, the first tranche of the settlement has been received.

Published in Dawn, January 27th, 2026

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