ISLAMABAD: Pakistan’s power sector faces significant challenges, with high electricity costs, systemic inefficiencies, and a growing circular debt at the forefront increasing the financial burden on consumers. The ex-WAPDA distribution companies (DISCOs) added a staggering Rs591 billion to the circular debt in FY2023-24, primarily due to excessive transmission and distribution (T&D) losses and weak recovery of billed amounts, according to Nepra’s “State of the Industry Report 2023-24.”
State of the Industry Report 2023-24 also highlights widespread overbilling practices, which inflate T&D losses by creating false receivables. Furthermore, Rs3.23 per unit imposed on electricity consumers as the Circular Debt Surcharge has penalized honest consumers for the defaults of others. The Anti-Theft Campaign from September 2023 to September 2024 generated a paltry Rs23.574 billion—far less than the sector’s outstanding dues.
The report offers a comprehensive review of the sector’s generation, transmission, distribution, and supply segments, emphasizing the urgent need for reforms to ensure efficiency and sustainability. It noted that to offset the circular debt crisis, a Circular Debt Surcharge of Rs3.23 per unit was imposed on electricity consumers during FY2023-24. Even protected consumers were not spared, as they were charged Rs0.23 per unit. This measure, however, has been criticized as unjust, penalizing honest consumers for the defaults of others and highlighting deeper systemic problems.
As of June 30, 2024, the circular debt ballooned to Rs2.393 trillion, driven by excessive transmission and distribution (T&D) losses and the shortfall in bill collections. DISCOs’ combined receivables amounted to Rs2.017 trillion by the end 2023-24 against Rs1.727 trillion last year, underscoring the deepening financial strain. The situation was further aggravated by Rs1.095 trillion in outstanding dues from defaulters. Likewise, the power sector has incurred staggering financial losses of Rs276.35 billion, surpassing the limits set by the National Electric Power Regulatory Authority. The sector’s inefficiencies have compounded the crisis, contributing to a massive financial shortfall of Rs314.5 billion due to insufficient recovery of billed amounts by Distribution Companies (DISCOs).
The regulator notes that despite allowing DISCOs an investment of Rs163.1 billion for network improvement, their T&D losses increased to 18.31 per cent in FY2023-24, up from 16.84 per cent the previous year. NEPRA’s target for T&D losses was 11.77 per cent, yet DISCOs collectively exceeded this by a wide margin, reflecting poor operational efficiency.
Pakistan’s power generation capacity reached 45,888 MW by the end of FY2023-24, yet only 33.88 per cent of it was utilized. This inefficiency forced consumers to bear the cost of unutilized capacity—approximately 66.12 per cent of the total—resulting in higher electricity tariffs. With generation costs accounting for approximately 83 per cent of consumer-end tariffs, optimizing excess capacity is critical to reducing electricity prices.
Transmission constraints also cost the sector Rs60.386 billion, while underutilized plants like Lucky Electric Power Company Limited added another Rs15 billion in financial losses due to the unavailability of local Thar coal. Consumers, meanwhile, paid a hefty average of Rs15.28 per kilowatt-hour in supplemental charges during FY2023-24. Similarly, operational inefficiencies at the Guddu 747 power also caused additional costs. The use of Guddu 747 in open cycle mode caused a Rs7.9 billion loss, and the absence of its steam turbine added another Rs86 billion to generation costs. Additionally, Non-Project Missed Volume (NPMV) payments and Part Load Adjustment Charges (PLAC) further weighed on the sector, with financial losses of Rs39.5 billion and Rs55.671 billion, respectively.
To overcome theft, the government initiated an Anti-Theft Campaign from September 2023 to September 2024. Despite extensive enforcement measures, including arrests and fines, the financial recoveries totalled only Rs23.574 billion — far less than the sector’s outstanding dues. The operational toll is not just financial — 146 fatal accidents were reported across the sector during FY2023-24, highlighting critical safety concerns.
In response, NEPRA has called for sweeping reforms, recommending autonomy for DISCOs to improve governance and operational efficiency. It also urged bi-annual performance evaluations of DISCOs’ Boards of Directors and top management, based on key performance indicators (KPIs), to address the worsening situation.
Additionally, NEPRA’s investigations revealed widespread overbilling practices, which inflate T&D losses by creating false receivables. NEPRA has taken punitive action, imposing fines on DISCOs and K-Electric (KE), but these entities continue to resist meaningful reforms. The absence of full-time managing directors and CEOs in key public sector companies has exacerbated governance and operational inefficiencies.
The performance of National Transmission and Despatch Company (NTDC) has also come under scrutiny. Despite the development of a 660 kV high-voltage direct current (HVDC) transmission line to enhance power flow from southern to central Pakistan, utilization stood at just 38 per cent. This underutilization resulted in an average per-unit cost of Rs7.39, burdening end-users with Rs97.833 billion in capacity payments.
The operational inefficiency of public sector generation companies (GENCOs) has further strained the sector. Key plants such as Guddu 747 have been non-operational for extended periods, forcing reliance on more expensive power sources. GENCO-II’s outdated open-cycle operations generate electricity at 1.5 times the cost of combined-cycle plants, adding to financial losses.
NEPRA’s report calls for urgent reforms, including granting greater autonomy to DISCOs, evaluating the performance of boards and management bi-annually, and addressing inefficiencies in billing and revenue collection. Without immediate action, the circular debt crisis and governance failures will continue to cripple the sector, leaving consumers to pay the price.
In a nation where electricity affordability is already a concern, the current trajectory of Pakistan’s power sector is unsustainable. The report underscores the need for comprehensive reforms, including improved governance, privatization of underperforming public sector entities, and strict enforcement of commercial contracts. Nepra’s initiatives, such as enhanced compliance monitoring and the Competitive Trading Bilateral Contract Market to foster competition in the supply segment, are highlighted as steps in the right direction. Until then, the burden of these systemic failures will continue to fall squarely on the shoulders of Pakistan’s electricity consumers.
