Pakistan cuts circular debt by $2.87 billion, targets zero by term-end

ISLAMABAD: Pakistan’s government has reduced the country’s mounting power-sector circular debt by Rs800 billion, roughly $2.8 billion, over the past two years and aims to eliminate the remaining burden before the end of its term, Energy Minister Sardar Awais Ahmed Khan Leghari said in an interview with Pakistan TV Digital earlier this week.

Circular debt, a chronic financial problem in Pakistan’s energy sector caused by unpaid bills, subsidies and system losses, stood at about Rs2.4 trillion when the current government took office, Leghari said. 

He said the figure has now fallen to around Rs1.6 trillion.

“We plan to get this off our books in the next three to four years so circular debt should vanish by the end of this government’s term,” Leghari said.

The minister presented the reduction as part of broader reforms aimed at stabilizing Pakistan’s energy sector, lowering electricity prices and reducing dependence on imported fuel amid regional instability and volatile global energy markets.

Leghari said recent disruptions tied to the conflict involving Iran exposed vulnerabilities in Pakistan’s energy mix, particularly in liquefied natural gas supplies from the Middle East.

“The Iran war has been an eye-opener,” he said.

Pakistan currently depends on imported fuels for about 26% of its electricity generation, according to the minister. 

He said the government aims to reduce that reliance to just 3% to 4% within the next eight to 10 years.

To achieve that target, Pakistan plans to expand domestic electricity generation through hydropower, nuclear energy and renewables.

Leghari said the government expects to add 10,000 megawatts of hydropower capacity, 17,000 megawatts of renewable energy and another 1,500 megawatts of nuclear generation over the next decade.

“Pakistan has been through a solar revolution,” he said, referring to rapid growth in privately financed rooftop and distributed solar systems across the country.

The minister also defended the government’s planned subsidy reforms, arguing that the current system unfairly burdens middle-income consumers.

Pakistan currently provides electricity subsidies to more than 22 million consumers who use fewer than 200 units of electricity per month, compared with about 9 million consumers previously, Leghari said.

The subsidies range from 65% to 85% and cost more than Rs500 billion annually, according to the minister.

He said many recipients are not among the country’s poorest households and that the government plans to link electricity meters with national identity cards and Benazir Income Support Programme records to better target low-income consumers.

“Only those in the lowest income levels will continue to get the subsidy,” Leghari said.

The savings, he added, would help reduce costs for middle-income consumers using between 200 and 700 units per month, who currently absorb much of the subsidy burden through cross-subsidization.

Leghari also said electricity prices for industrial users have already fallen significantly after the government reduced cross-subsidy costs.

Industrial tariffs dropped by about 16 rupees per unit, from roughly 17 to 18 cents per kilowatt-hour to around 12 cents, while household consumers saw average reductions of 8 to 9 rupees per unit, he said.

According to the minister, lower electricity prices have already contributed to a 6% to 7% increase in demand.

The government is also preparing optional time-of-use electricity pricing that would allow consumers to use cheaper power during peak solar-generation hours, pending approval from the International Monetary Fund, Leghari said.

On power outages, the minister acknowledged that some parts of Pakistan experienced six to seven hours of load shedding in late April.

He attributed the outages to reduced LNG supplies and a temporary drop in hydropower generation, which fell to nearly 1,000 megawatts before recovering above 6,500 megawatts.

Leghari said 11,000 of Pakistan’s 14,000 electricity feeders currently operate without load shedding.

The remaining 3,000 feeders face what the government describes as “economic load shedding” because of high electricity theft and non-payment rates.

“We are moving toward technology at the transformer level so we can switch off only the specific communities involved in theft, rather than the whole feeder,” he said.

As Pakistan heads into peak summer demand, Leghari said the national grid is prepared to meet electricity consumption levels that typically reach around 29,000 megawatts.

“There will be no load shedding due to lack of demand or capacity,” he said.

The government is also working to modernize the national grid and encourage private-sector investment in large-scale battery storage systems to improve stability and integrate more renewable energy into the network, according to the minister.