Circular Debt Still at Rs1.6 Trillion as GENCOs’ Unpaid Dues Undermine Reform Gains

Staff Report
ISLAMABAD: Pakistan’s power sector remains burdened by a circular debt of Rs1,614 billion, while billions of rupees in unpaid dues owed by state-owned generation companies (GENCOs) continue to strain the financial stability of the entire energy supply chain, raising questions over the sustainability of recent reforms.
According to sources, the Power Division briefed the Cabinet Committee on Energy (CCoE) — chaired by Prime Minister Shehbaz Sharif on July 29 — that circular debt had declined from Rs2,393 billion in FY2024 to Rs1,614 billion in FY2025. This reduction was attributed to improved management of distribution companies (DISCOs) and ongoing loss reduction efforts.
Official documents show that the annual financial losses of DISCOs reportedly fell from Rs591 billion to Rs397 billion during the same period. The report was submitted in line with previous CCoE directives requiring quarterly updates on billing, collections, and debt, with the National Electric Power Regulatory Authority (NEPRA) ensuring data accuracy.
However, sources present in the meeting disclosed that Petroleum Minister Ali Pervaiz Malik flagged serious issues regarding unpaid arrears by GENCO-II (Central Power Generation Company Ltd.) and GENCO-III (Northern Power Generation Company Ltd.) to entities such as Pakistan State Oil (PSO), Sui Northern Gas Pipelines Limited (SNGPL), and Pakistan Petroleum Limited (PPL).
These companies supplied fuel and gas to GENCOs, which, despite receiving payments from the Central Power Purchasing Agency (CPPA), allegedly diverted the funds elsewhere rather than settling supplier dues. According to a senior Petroleum Division official, PSO alone is owed Rs156.7 billion by GENCO-III, including a principal amount of Rs65.7 billion and Rs90.6 billion in financial costs.
Similarly, GENCO-II owes SNGPL around Rs30 billion — with Rs9 billion as principal and Rs21 billion as late payment surcharges. In addition, PPL is awaiting Rs150 billion from GENCO-II, comprising Rs93 billion in gas costs and Rs57 billion in financial charges.
The official revealed that while circular debt is being partially managed through government budgetary support and CPPA-backed loans, a significant portion of dues — particularly inter-entity liabilities — remains unaccounted for in official reporting, highlighting critical transparency and accountability gaps in the energy chain.
In response to these revelations, Power Minister Awais Leghari assured the forum that the issue of GENCOs’ arrears would be resolved. The CCoE, meanwhile, praised the Power Division for the reported reduction in losses and decided to issue commendation certificates to officials — especially from LESCO — for their performance.
Despite this official acknowledgment, experts believe that the underlying structural issues in the power sector remain unresolved. The shifting of debt burdens between various entities may mask the real depth of the problem, rather than eliminating it altogether.