Discos adding Rs600bn to Pakistan's circular debt annually: report

Islamabad is struggling to stop losses arising from the national grid as low recovery rates and electricity theft run rampant. According to Profit, inefficiencies in power distribution companies (Discos) are tacking up a staggering 600 billion rupees in debt, worsening the circular debt problem.

This spells bad news for Pakistan as circular debt has now surged to a whopping 2.467 trillion rupees. The worst part is that most of the Discos are government owned which means that the national exchequer suffers as a result of inefficiencies in power distribution.

Though Discos claim that they have a respectable recovery rate hovering around 92.5 percent, the ugly truth is that they still add approximately 50 billion rupees to the circular debt every month.

The rising debt levels come at a terrible time for Pakistan which is struggling to meet the tough fiscal conditions set by the International Monetary Fund (IMF). The federal government is ultimately responsible for the financial losses incurred by the discos.

This is because they fall under the administrative umbrella of Pakistan Electric Power Company (PEPCO) which the Ministry of Energy is responsible for. Lawmakers in Islamabad are perhaps growing uneasy as outstanding dues from both private and public sector consumers have risen by over 69 percent to a staggering two trillion rupees in FY 2025.

Outstanding dues stood at under 1.2 trillion rupees in 2021 and since then, an upward trend has been witnessed when it comes to national grid users not paying their dues. According to the data, receivables have grown by 16.79 percent which have strained the system even further.

The biggest culprits in the growth of outstanding dues are large industrial unit owners and notable political figures. Put together, they owe a combined value of over one trillion rupees as of FY 2024. With such a small segment of the population being responsible for approximately 50 percent of outstanding dues, some analysts are squarely placing the blame on this privileged segment of society.

An official working closely with Disco operations revealed that the distributors have resorted to underhanded methods to improve recovery rates. According to Profit, the estimated 15 percent recovery show per year is a direct result of overbilling. This has significantly eroded the trust of everyone using the national power grid.

If Discos are left to their own devices and are not subjected to significant structural reforms, they could effectively strangle the economy. This is because the current situation entails an explosion in circular debt growth and unfair business practices.