ISLAMABAD: The Auditor General of Pakistan (AGP) has recommended aligning the operational framework of power Distribution Companies (DISCOs) with the model of K-Electric, which operates under a ring-fenced commercial structure and does not contribute to the accumulation of national circular debt.
The strategic plan for the privatisation of Pakistan power sector (1992) envisaged restructuring of WAPDA to establish a financially self-sustaining power sector independent of recurrent Government of Pakistan support. The Plan emphasized improving efficiency through competition, accountability, managerial autonomy and profit incentives, while ensuring that electricity tariffs reflect the true cost of service and that inefficiencies such as technical losses and pending recovery are eliminated at the utility level rather than transferred to consumers. The Plan further required that distribution companies operate as autonomous commercial entities, maintain full recovery of billed revenues, and avoid accumulation of liabilities that would necessitate government borrowing or consumer-funded surcharges.
During unbundling of WAPDA, the Audit(Power) observed that despite NEPRA’s tariff determination mechanism being designed to fully cover the revenue requirements of the power supply chain, public sector DISCOs continued to operate with persistent inefficiencies, particularly high T&D losses and low recovery ratios. Consequently, these entities were unable to generate sufficient cash flows to meet their payment obligations, resulting in continued accumulation of circular debt. As of June 30, 2025, the circular debt stock stood at approximately Rs 1.614 trillion, compared to Rs 2.393 trillion as of June 30, 2024, reflecting a reduction of about Rs 780 billion within one year.
Audit further noted that this reduction was not achieved though structural improvements in DISCO performance. During financial year 2024-25, DISCO inefficiencies continued to add significantly to circular debt. with approximately Rs 265 billion attributable to T&D losses and Rs 132 billion due to recovery shortfalls.
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Audit maintained that the reduction in the circular debt stock was primarily the result of Government intervention through commercial financing to retire liabilities of the Power Holding (Private) Limited and clear arrears of IPPs, rather than improvements in operational discipline.
To service the cost of this borrowing undertaken to manage sector inefficiencies, electricity consumers excluding limited protected categories have been subjected to an additional Debt Service Surcharge (DSS) of Rs 3.23 per kWh for an extended period, which has emerged as a major standalone component of the end consumer tariff.
It was further observed that the only private sector distribution utility, K-Electric operates under a ring-fenced commercial structure and does not contribute to the accumulation of national circular debt, as it absorbs the financial impact of its own operational inefficiencies within its balance sheet rather than transferring them to the power supply chain.
“Continued reliance on government borrowing and tariff-based surcharges has substituted for structural reform, allowing inefficiencies to persist without timely corrective action,” Audit observed, recommending aligning public sector DISCOs operating framework with the model of K-Electric which operates under a ring-fenced commercial structure and does not contribute to national circular debt.
Copyright Business Recorder, 2026
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