Circular Debt and Electricity Tariffs: Unequal Burdens across Household Quintiles in Pakistan

Rubina Ilyas
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Rubina Ilyas: Pakistan Institute of Development Economics

No 2025:135, PIDE Knowledge Brief from Pakistan Institute of Development Economics

Abstract: 1. Introduction Despite expanded generation capacity of over 45,000 MW by mid-2025, the power sector continues to remain fiscally insolvent. DISCO inefficiencies persisted with the average transmission and distribution (T and D) losses being 16-17 percent and the collection between 95 percent for IESCO and LESCO to 60 percent for PESCO and QESCO, contributing to a vicious circle of arrears and bailouts for all ten state owned DISCOs (Ministry of Power Division, 2024). Circular debt accrues due to a number of reasons including supply cost outweighed by the tariff revenue, delayed subsidy disbursements, high losses, and payments for predetermined capacity. To bridge this deficit, the government has always raised tariffs or imposed surcharges periodically. These periodic tariff increase adds to the burden of inefficiencies especially for the lower-income groups who are least able to absorb it. The result is a power sector that is financially unsustainable, politically indefensible, and socially unacceptable.

Pages: 5
Date: 2025
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