EDITORIAL: The Power Division is keen to highlight that the circular debt stock has been reduced from over Rs2.3 trillion to Rs1.6 trillion, and will fall further after a new Rs1.275 trillion loan is disbursed.
Yet beneath the arithmetic the fundamentals remain unchanged. The debt may shrink on paper, but the real disease continues unchecked. Distribution losses, theft, and poor recovery practices are still draining the sector, now calculated at nearly Rs397 billion. And consumers, not the system, are being made to pay for the adjustment.
The government’s latest plan relies on bank borrowing, with repayments to be serviced through the Debt Service Surcharge already imposed on every unit of electricity consumed.
In effect, the circular debt is not being retired by reforms or efficiency gains but by transferring the liability directly to households and businesses. This may clean up the balance sheet in the short term, but it does nothing to address why losses remain high, or why honest consumers are perpetually penalised for the failures of power companies and regulators.
The reduction in reported payables to power producers and fuel suppliers is welcome, but it is achieved through the use of fresh loans. That is not reform; it is rescheduling. Meanwhile, the distribution companies still show Rs265 billion in technical and distribution losses and Rs132 billion in recovery losses.
The figures may have declined from last year, but they remain at levels that would be considered catastrophic in any well-governed system. These are not accidents of climate or chance. They are the outcome of poor governance, corruption, and political interference in the boards and managements of state-owned Discos.
The result is a vicious cycle. Theft and non-recovery drive up costs, tariffs rise to compensate, and paying customers carry a heavier burden. The higher the tariff, the stronger the incentive to default or steal power, and the cycle repeats. Breaking it requires action at the point of leakage, not endless rounds of refinancing. Smart metering, independent boards, and credible enforcement against theft have been advocated for years, but implementation remains sporadic. Without these, even the headline figure of Rs397 billion in losses will prove temporary.
The larger issue is credibility. Circular debt has been “reduced” many times before, only to balloon again within a few years because the underlying problems were left untouched. This is the risk again.
The state may point to an improved balance sheet in 2025, but unless distribution losses are cut decisively and recoveries are raised to near 100 percent, the numbers will once more climb. Consumers, already squeezed by high tariffs, cannot be expected to carry this burden indefinitely.
What is required is a structural approach that moves beyond book adjustments. Discos must be held accountable through performance-based contracts and professional management. Theft-prone feeders should be prioritised for technology upgrades and strict enforcement. Tariffs must reflect efficiency, not inefficiency, and governance must ensure that those responsible for persistent losses face consequences, rather than passing the cost to the public year after year.
The government is right that circular debt is a threat to fiscal stability and energy security. But it is not enough to reduce the number by shifting liabilities. The disease manifests itself in system losses, theft, and non-recovery, and until these are cured, the burden will continue to be borne by consumers who are already paying more than enough.
Copyright Business Recorder, 2025
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