DISCO losses erode gains from Rs780B debt cut

Pakistan’s power sector cut its circular debt by PKR 780 billion in FY25, but persistent distribution inefficiencies — costing PKR 265 billion — continue to undermine progress

Staff Report

Distribution companies (DISCOs) recorded PKR 265 billion in technical and commercial losses in FY25, only slightly lower than PKR 276 billion in FY24.

Under-recoveries improved more sharply, dropping to PKR 132 billion from PKR 315 billion the previous year. Analysts caution that without operational reforms, these losses could reverse recent debt relief.

Record debt reduction

According to Optimus Research citing Ministry of Energy data, outstanding circular debt fell to PKR 780 billion in June 2025 from PKR 1.56 trillion a year earlier and PKR 2.31 trillion in June 2023.

The reduction was driven mainly by PKR 801 billion in stock payments to Independent Power Producers (IPPs) under renegotiated or terminated agreements, supported by the release of budgeted subsidies.

Payables and arrears

Payables to power producers decreased to PKR 861 billion in June 2025 from PKR 1.6 trillion a year earlier. GENCOS’ payable to fuel suppliers also declined slightly to PKR 93 billion from PKR 110 billion. However, non-payment issues persisted, with K-Electric adding PKR 4 billion to sector arrears.

Breakdown of FY25 debt movement

The PKR 780 billion net debt cut resulted from:

• Positive factors: reduced under-recoveries (PKR 132 billion), lower inefficiencies (PKR 265 billion), and budgeted but unreleased subsidies (PKR 28 billion).
• Negative factors: stock payments to IPPs (PKR 801 billion), pending generation costs (PKR 85 billion), unbudgeted subsidies (PKR 63 billion), interest charges on PHL and IPPs (PKR 58 billion), PHL principal repayments (PKR 24 billion), and other adjustments.

Sector experts warn that the gains from FY25’s record debt reduction will be short-lived if distribution losses and payment delays remain unresolved. Structural reforms in DISCO operations are seen as essential to prevent a rebound in circular debt.Power Division Rules Out New Power Surcharge on Bills