Circular debt rises Rs61 billion to Rs1.675 trillion, government blames K Electric

Pakistan’s power sector circular debt rose by Rs61 billion to Rs1.675 trillion by June 30, 2026, with the government blaming nonpayment

Islamabad:  Pakistan’s power sector circular debt rose by Rs61 billion to Rs1.675 trillion by June 30, 2026, with the government blaming nonpayment by K Electric for electricity supplied from the national grid. The government has told the National Assembly that a pending court case over K Electric’s tariff is a major reason for the unpaid amount, while a decision in the case is expected soon.

The disclosure came in a written reply by Energy Minister Sardar Awais Ahmad Khan Leghari to a question from MNA Mussarat Rafique Mahesar during the National Assembly’s 30th session. The figures show that circular debt increased from Rs1.614 trillion at the end of financial year 2024 to 25 to Rs1.675 trillion at the end of June 2026.

The increase of Rs61 billion means the circular debt stock grew by around 3.8 percent over the reported period. Circular debt builds up when payments between power producers, electricity suppliers and distribution companies remain unpaid, leaving parts of the electricity system unable to clear their bills on time.

According to the minister, nonpayment by K Electric for electricity supplied through the national grid was the main reason for the latest increase. He said the nonpayment was linked to a tariff dispute being heard in court. The government expects a decision soon, but the reply did not provide a date for the expected ruling or say how much of the circular debt increase was directly linked to the dispute.

The government says it has taken several measures to reduce the debt burden. These include ending agreements with costly independent power producers, commonly known as IPPs, and changing power purchase arrangements from the Take or Pay model to a Hybrid Take and Pay model.

Under a Take or Pay arrangement, the buyer may have to pay for agreed capacity even when it does not use all the electricity. The government says shifting towards a hybrid model is among its steps to manage these costs.

Other measures include waiving late payment interest on certain outstanding dues, reducing the late payment interest rate in future contracts and limiting the effect of rupee depreciation and annual inflation on tariff adjustments. These steps are intended to reduce the additional costs that can add to the power sector’s financial pressure.

A major part of the government’s circular debt management plan involves a Rs1.225 trillion financing facility secured from commercial banks at a rate of KIBOR minus 0.9 percent for six years. KIBOR is the benchmark interest rate used by banks when pricing loans in Pakistan.

The government used this facility to repay an earlier high cost loan of about Rs659 billion, which carried markup of up to KIBOR plus 1 percent. The new financing was also used to settle overdue payments to independent power producers, subject to their waiving late payment interest.

The arrangement was designed to replace more expensive borrowing with cheaper financing and clear overdue payments. However, the written reply does not say that these steps have eliminated circular debt. The latest figures instead show that the total outstanding amount still rose between the end of financial year 2024 to 25 and June 2026.