ISLAMABAD: The federal government has prepared a plan to resolve the legal dispute with K-Electric and finalise agreements with all Independent Power Producers (IPPs) as part of efforts to reduce the country’s circular debt burden. The government estimates that these measures could reduce the annual flow of circular debt by up to Rs300 billion.
The government has shared details of the plan with the International Monetary Fund (IMF). According to officials, efforts are underway to resolve the long-standing dispute with K-Electric by the end of September 2026, as delayed payments and unresolved claims continue to increase arrears.
Official documents show that as of February 2026, K-Electric’s liabilities to the federal government had reached Rs365 billion. Of this amount, Rs169 billion constitutes the principal liability, while approximately Rs195 billion represents accumulated interest.
The documents reveal that the federal government’s total liabilities to K-Electric increased by Rs147 billion during the first eight months of the current fiscal year. Sources said these liabilities arose due to the supply of electricity from the national grid to K-Electric.
The government has also informed the IMF that settlements with several IPPs have already been completed as part of a broader strategy to reduce the stock of circular debt. However, officials acknowledged that the operation remains incomplete, contributing to the continued accumulation of circular debt.
According to the government’s plan, agreements with all remaining IPPs are expected to be finalised by the end of June 2026.
Officials expressed optimism that the proposed measures would significantly reduce the flow of circular debt, with a target of limiting the annual increase to Rs300 billion by the end of the next fiscal year.
The government has also set a long-term goal of eliminating the country’s circular debt entirely by fiscal year 2030-31.
