Informed sources indicate that the Power Division has notified the Prime Minister’s Office (PMO) that the allocated budget for the power sector for the current fiscal year is expected to be reduced by a further 23%, bringing the total allocation down from the budgeted PKR 1.261 trillion to PKR 893 billion.
This clarification was provided in response to an inquiry from the PMO regarding the current stock and trend of circular debt in the energy sector.
Circular Debt Trend and Improvement
Sources report that the Power Division informed the PMO that recent reports concerning circular debt do not accurately reflect the current situation.
- During the July to August 2024 period, circular debt increased by PKR 87 billion.
- However, in the same period of 2025, effective measures resulted in an improvement of PKR 107 billion, showing a net reduction of PKR 20 billion.
- The sources added that despite operational challenges, particularly the impact of floods on collections and losses, the cumulative increase in circular debt stood at PKR 109 billion by the end of September 2025, which is notably less than the first quarter of the previous year.
The Ministry of Energy also stated that the total allocation for the power sector for FY 2024–25 was PKR 1.288 trillion, which included a concession from the Petroleum Development Levy (PDL). The initial requirement for FY 2025–26 was PKR 1.261 trillion, with PKR 182 billion anticipated to be generated from PDL as additional revenue.
However, after removing the PDL concession and regular subsidies, the final allocation was reduced to PKR 1.036 trillion (0.8% of GDP).
Sources clarified that this reduced allocation meant that the intended re-basing benefit of PKR 1.5 per unit could not be passed on to consumers. Instead, a surge of 55 paisas per unit was implemented. The sources further revealed that this allocation is expected to be reduced further to PKR 893 billion during the upcoming budget review.
Officials warned that although the energy sector has shown improvement in managing circular debt, it may be difficult to achieve the fiscal and performance targets set by the government if financial pressures persist.
Power Division Rejects ‘Misleading’ Claims
On November 5, 2025, a spokesperson for the Power Division reacted to reports suggesting a re-increase of PKR 79 billion in circular debt during the first quarter of FY 2025–26, rejecting the claim as “misleading.”
The spokesperson clarified that the PKR 79 billion increase must be seen in context:
- Circular debt grew by PKR 73 billion during the same quarter last year, but the overall volume of circular debt was reduced by PKR 780 billion by the end of that fiscal year.
- The quarter’s increase was attributed to seasonal and operational factors, which are expected to reverse by the year’s end.
Furthermore, the spokesperson added that the non-performing losses of Power Distribution Companies (DISCOs) for July-September 2025 decreased by PKR 67 billion compared to the same period last year, highlighting the government’s commitment to improving operational efficiency and maintaining fiscal discipline in the sector.
According to sources, such interim fluctuations in circular debt do not affect consumer tariffs, which continue to be determined under the standard regulatory process.
