LAHORE: The increase in circular debt with every tariff increase belies logic. Circular debt should have vanished had the energy sector in Pakistan operated on global best practices.
Pakistan’s power consumers continue to suffer under crushing electricity bills, yet the country’s circular debt keeps expanding like a bottomless pit. Every few months’ tariffs are increased in the name of reforms, recovery and IMF conditions.
However, the financial health of the power sector refuses to improve. The hard reality is that raising electricity prices alone cannot solve the crisis when the sector continues to bleed through massive line losses, theft, inefficiency and poor governance.
The irony is striking. Every increase in tariff, instead of curing the disease, often enlarges the circular debt burden. The reason is simple. When electricity becomes more expensive, every stolen or lost unit also becomes more expensive. A unit stolen at Rs10 15 years ago now carries a cost of Rs50 to Rs70 after fuel adjustments, taxes, capacity payments and surcharges. Thus, even if the percentage of line losses falls marginally, the financial losses continue to explode because the value of each lost unit has multiplied several times.
Pakistan’s electricity distribution companies (Discos) were losing around 20 per cent of electricity transmitted through their networks in 2010. Official data indicated that nearly 24 to 25 billion units of electricity were lost annually because of theft, weak transmission infrastructure, faulty metering, illegal connections and poor recoveries. At that time, the financial impact of these losses was estimated at around Rs200 to Rs245 billion annually.
Fifteen years later, despite repeated reforms, foreign-funded projects and countless promises of restructuring, the situation remains alarming. Although average line losses have declined somewhat to around 17.5 per cent by 2025, the financial damage has become far more devastating because electricity tariffs have sharply increased over the years.
Today, the power sector is losing hundreds of billions of rupees annually. Reports indicate that inefficiencies, excessive line losses, and weak recoveries imposed a burden of nearly Rs397 billion during FY2024-25 alone. In the first quarter of FY2025-26, losses had already crossed Rs171 billion. If this trend continues, annual losses could again exceed Rs400 billion.
The worst-performing Discos continue to remain concentrated in areas where governance is weak and political interference is high. Distribution companies such as Pesco, Hesco, Sepco and Qesco continue to report shocking loss levels ranging between 28 per cent and nearly 40 per cent. In some regions, a substantial portion of supplied electricity is either stolen or bills are simply not recovered. Honest consumers across the country are effectively being forced to subsidise theft and inefficiency elsewhere.
This vicious cycle has serious economic and social consequences. Industries face some of the highest electricity tariffs in the region, making Pakistani exports less competitive. Small businesses struggle to survive. Salaried classes are crushed under inflated utility bills. Poor households are increasingly forced to compromise on food, health, and education simply to keep lights and fans running during extreme weather conditions.
The tragedy is that Pakistan’s power sector crisis is no longer merely an energy issue; it has become a governance crisis. Successive governments have preferred the politically easier option of raising tariffs rather than undertaking difficult structural reforms. Little progress has been made in modernizing transmission systems, improving metering, privatizing inefficient Discos, prosecuting organised electricity theft, or insulating power companies from political pressure.
Unless line losses and recoveries are dramatically improved, circular debt will continue to grow regardless of how much tariffs are increased. Higher tariffs without efficiency reforms are like pouring water into a leaking bucket. Consumers are paying more, but the system itself remains fundamentally broken.
Pakistan urgently needs a power sector built on efficiency, accountability, and commercial discipline rather than endless tariff shocks imposed on already exhausted consumers. Otherwise, circular debt will continue to rise, industries will continue to lose competitiveness, and public anger over unbearable electricity bills will only deepen further.
