ISLAMABAD: Power Division has challenged an Audit (Power) report released by the Auditor General of Pakistan in which it recommended aligning the operational framework of power Distribution Companies (Discos) with the model of K-Electric (KE), which operates under a ring-fenced commercial structure and does not contribute to the accumulation of national circular debt.
A spokesperson of Power Division argued that the assertion that K-Electric does not contribute to circular debt is misleading.
“K-Electric has also contributed to the circular debt through delays and shortfalls in remitting its dues to CPPA-G in the past and continues to do so in the present. According to the Circular Debt report of January 2026, receivables from K-Electric for CFY 2025-26 amounted to approximately Rs. 145 billion,” said Power Division Spokesperson.
The Spokesperson further stated that the claim that the reduction of circular debt by Rs. 780 billion was not achieved through improvements in Discos’ performance is also factually incorrect. In fact, Disco inefficiencies improved significantly, with a reduction of approximately Rs. 193 billion in FY 2024-25 compared to FY 2023-24.
Furthermore, the ongoing circular debt settlement plan is designed to gradually eliminate the outstanding stock of circular debt over the next five to six years. Once the circular debt stock is cleared, the debt service surcharge currently embedded in the tariff structure will no longer be required, which will contribute to additional tariff relief for electricity consumers.
“The observation that reliance on government borrowing and tariff-based surcharges has substituted structural reform does not fully reflect the ongoing reforms in the power sector. These financing measures were part of a structured plan to manage legacy circular debt while reforms and operational improvements are being implemented,” said the Audit report.
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.
Copyright Business Recorder, 2026
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