Citing sources, The News has reported that the International Monetary Fund (IMF) has directed Pakistan to slash the fresh accumulation into the substantial power sector circular debt (CD) to zero starting from the current fiscal year.
The persistent operational weaknesses of the Power Distribution Companies (Discos) continue to be a major concern. These inefficiencies resulted in Rs265 billion in losses in FY25, a slight improvement from Rs276 billion in FY24. Additionally, under-recoveries were recorded at Rs132 billion in FY25, a reduction from Rs315 billion in FY24.
The IMF has received a briefing on the baseline tariff, scheduled for implementation from January 1, 2026. The National Electric Power Regulatory Authority (NEPRA) will review the interim tariff for eight Discos for 2025-26, following power firms’ request for Rs455 billion in revenues. Sources indicated that this could translate into a per-unit tariff hike hovering around a 2 to 4% increase, contingent upon NEPRA’s final determination.
Given the magnitude of losses incurred by Discos, completely eliminating them is deemed unrealistic. However, the IMF is pressuring authorities to minimize the losses as much as possible, with any remaining deficit to be covered by budgetary subsidies.
Pakistan and the IMF held technical-level talks on Friday, during which high-ranking Power Ministry officials informed the Fund mission about the baseline tariff and the circular debt inflows for the current fiscal year. Pakistani authorities also presented the IMF mission with a plan to clear the existing CD stock over the next three to six years.
The circular debt stock stood at Rs1.614 trillion at the end of FY2025, approximately Rs780 billion lower than FY2024, having peaked at Rs2.310 trillion in FY2023. Power sector subsidies amounted to Rs1.225 trillion in FY2025. The government successfully arranged Rs1.2 trillion through banks to reduce the CD stock to about Rs400 billion. To service this bank exposure, consumers will face a surcharge of up to Rs3 per unit for five years.
The government has committed to tightly control fresh CD inflows this year. Discussions also focused on the levy on captive power plants, consumer pass-through mechanisms, and tariff rebasing. The IMF was briefed that the annual tariff rebasing cycle will shift from the previous July 1 to January 1 starting from FY2026. Distribution companies will be required to review operational and financial needs and submit proposals ahead of each annual rebasing. Officials stated that NEPRA’s legal and regulatory framework is being amended to support this new schedule, a change requested by the IMF and approved by the government.
An analysis of the six-month period from July to December 2024 highlights the escalating financial difficulties faced by DISCOs, with total core operating losses reaching Rs283.7 billion before government subsidies. Major loss contributors include Quetta (Rs92.65 billion), Peshawar (Rs53.68 billion), and Hyderabad (Rs39.63 billion), underscoring specific areas in critical need of loss reduction.
Even Discos that appeared profitable before subsidies, such as Multan, Faisalabad, and Gujranwala, registered net losses of Rs35.17 billion, Rs13.12 billion, and Rs7.32 billion, respectively, once subsidies were factored in. Lahore, Islamabad, Sukkur, and Tribal DISCOs also showed marginal losses or failed to maintain profitability post-adjustments. Quetta Disco, notably, recorded an EBIT loss of Rs60.36 billion, and even with an additional Rs32.30 billion in subsidies, the overall net loss remains substantial.
Dr. Khaqan Najeeb, former Advisor to the Ministry of Finance, commented that the ongoing technical and commercial losses, estimated at about 20%, point to deep-seated inefficiencies in billing, collection, and transmission infrastructure, which cause persistent losses. The average losses from July-December 24 stood at approximately Rs300 billion, which could project to about Rs600 billion annually, emphasizing the urgent need for reforms. Dr. Khaqan suggested that the path forward involves strengthening governance, technology upgrades, potential privatization or concession models, and timely tariff updates, alongside the necessary measures to improve liquidity and clear the backlog of CD, as recently implemented by the authorities.
