Power-sector circular debt ends 2025-26 just below target despite K-Electric arrears
The power-sector circular debt closed the financial year 2025-26 marginally below target, but unpaid dues from K-Electric prevented a larger reduction, the Cabinet Committee on Energy was told. The Ministry of Energy (Power Division) submitted verified circular debt data for the third quarter (January-March 2026) and for the full year ended June 30, for the committee's consideration.
The Power Division said the circular debt position stood at Rs1,798 billion against a target of Rs1,802 billion, a positive variance of Rs4 billion. The gross flow of circular debt was Rs420 billion against a target of Rs400 billion, a negative variance of Rs20 billion. Inefficiency at the distribution companies, comprising transmission and distribution losses and under-recoveries, was calculated at Rs176 billion against a target of Rs254 billion, a favourable variance of Rs78 billion.
According to the Power Division, the main factors constraining debt reduction were K-Electric's non-payment of Rs171 billion, made up of a CPPA-G invoice of Rs148 billion plus Rs23 billion in late payment surcharge, and Rs13 billion on the fuel cost power surcharge. Had the full payments been received, the division said, circular debt would have decreased by Rs175 billion.
The submission follows a Cabinet Committee on Energy direction of January 14, 2025 requiring the Power Division to present billing, collection and circular debt figures every quarter. The committee has also directed the National Electric Power Regulatory Authority (Nepra) to ensure the integrity of the data in the report. The circular debt report for January, February and March 2026 was shared with Nepra and the Finance Division, which later communicated that the dispute with K-Electric may be resolved under the relevant Nepra Act/regulations.
Meeting participants reviewed the performance of the distribution companies against Nepra targets and against the previous year, and noted that circular debt statistics as of the end of the financial year 2025-26 had been finalised. After considering the quarterly report and the annual report for the year ended June 2026, the committee directed the Power Division to expedite reforms to check future slippages and deficits in the sector, and reiterated that it should pursue all organisational means of improving financial performance through operational efficiency and reduced expenditure, particularly to lower the cost of electricity for consumers. The Power Division assured the committee that the necessary steps would be taken to address circular debt, and said it would accelerate the pace of power-sector reforms.
