ISLAMABAD: The Power Division has informed the Prime Minister’s Office that the power sector allocation for the current fiscal year is expected to be reduced by another 23 percent —to Rs 893 billion from the budgeted Rs 1.261 trillion — Business Recorder has learnt from well-informed sources.
The clarification was shared with the PMO in response to its query regarding the current stock and trend of circular debt in the power sector.
According to the sources, the Power Division has conveyed that recent reports on circular debt do not accurately reflect the prevailing situation. During July–August 2024, circular debt had increased by Rs 87 billion; however, in the same period of 2025, effective measures resulted in an improvement of Rs 107 billion, showing a net reduction of Rs 20 billion.
Power sector subsidy slashed by 13pc
Despite operational challenges — particularly floods that affected recoveries and losses — the net addition to circular debt by end-September 2025 stood at Rs 109 billion, significantly lower than the first quarter of the previous year, the sources added.
The Power Division further stated that the total power sector allocation for FY 2024–25 was Rs 1.288 trillion, including relief from the Petroleum Development Levy (PDL). For FY 2025–26, the initial requirement was Rs 1.261 trillion, with Rs 182 billion to come from PDL as an additional revenue measure.
However, the final allocation was reduced to Rs 1.036 trillion (0.8 percent of GDP), removing both PDL relief and routine subsidies.
“Due to this reduced allocation, a lower rebasing benefit of Rs 1.5 per unit could not be passed on to consumers. Instead, the tariff was increased by 55 paisa per unit,” the sources explained, adding that the allocation is now expected to be further slashed to Rs 893 billion during the upcoming budget review.
Officials warned that while the power sector has shown improvement in circular debt management, persistent fiscal constraints could make it difficult to achieve the financial and performance targets set by the government.
On November 5, 2025, a Power Division spokesperson, responding to reports suggesting a renewed rise in circular debt by Rs 79 billion in the first quarter of FY 2025–26, rejected the claim as “misleading.”
The spokesperson clarified that the Rs 79 billion increase must be seen in context. “During the same quarter last year, circular debt had risen by Rs 73 billion; however, by the end of that fiscal year, the overall stock of circular debt was reduced by Rs 780 billion,” he said, attributing the quarterly uptick to “seasonal and operational factors” that are expected to reverse later in the year.
He further noted that inefficiencies in power distribution companies (DISCOs) had decreased by Rs 67 billion during July–September 2025 compared to the same period last year, underscoring the government’s commitment to improving operational performance and maintaining fiscal discipline in the sector.
The spokesperson emphasized that such interim fluctuations in circular debt have no impact on consumer-end tariffs, which continue to be determined through the standard regulatory process.
On November 6, 2025, during a public hearing on Quarterly Tariff Adjustment (QTA) request of Discos for the first quarter of (July-September) 20245-26, Member (Technical) Rafique Ahmad Shaikh stated that power sector circular debt will persist under the existing power sector structure.
Copyright Business Recorder, 2025
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