Islamabad January 1 2025: Pakistan’s power sector Circular Debt escalating to PKR 2,393.370 billion as on June 30, 2024, reflecting an increase of PKR 83.37 billion from PKR 2,309.997 billion at the end of FY 2022-23, according to state of the industry report published by NEPRA.
The growing circular debt compounded by defaulters owing PKR 900.82 billion has hampered the operational efficacy of DISCOs. High Transmission and Distribution (T&D) losses and less than 100% recovery of billed amount contribute to the accumulation of the circular debt. The T&D losses, recorded at 18.31% for FY 2023-24 compared to the allowed 11.77%, have, added PKR 276 billion to the circular debt during the year.
Higher T&D losses reflect inefficiencies and outdated infrastructure requiring a comprehensive review and improvement of T&D systems urgently. Excess losses need to be curbed through targeted improvements, prudent investment practices and better management practices to prevent escalation of circular debt for stabilizing the sector’s financial health.
The low recovery rate of 92.44% has added PKR 314.51 billion to the circular debt during FY 2023-24. Low recovery manifests underperformance of DISCOs rooted largely in poor governance. The situation requires organizational overhaul with a focus on accountability. Strategies should include outsourcing recovery efforts and addressing low-recovery areas through targeted actions against defaulters, rather than resorting to feeder shutdowns that lead to greater revenue loss for DISCOs.
The huge receivables of all DISCOs including KE, which surged to PKR 2,320.88 billion in FY 2023-24, necessitate investigations into possible billing manipulations and accurate assessments of non-receivables. Committees having representatives of DISCO as well as independent professionals may be established to validate the correctness of receivables of DISCOs. The practice of cross-subsidization, where more efficient DISCOs bear the financial burden of less efficient counterparts, must also be addressed on priority. This policy decision, while aiming to ensure that electricity remains uniform for all consumers, inadvertently creates a system where inefficiency is rewarded, and operational shortcomings are obscured.
