Circular Debt in Pakistan: Why Your Bijli Bill Keeps Rising

Every month, millions of Pakistanis open their electricity bill and stare at line items they never signed up for: fuel charges adjustments, quarterly adjustments, taxes on taxes. Most people blame the government, the IMF, or the power company — and all three are partly right. But the real name of what you are paying for is something drier and more expensive: the circular debt. This is circular debt in Pakistan explained the way it actually works — not as a headline number, but as a chain of unpaid bills that starts in Islamabad's power ministry and ends at the meter outside your house. By October 2026 the numbers have moved in ways nobody reported properly: the power pile is down from its peak, the gas pile has quietly ballooned past it, and a Rs 1.225 trillion bank loan now sits between you and the old debt. Here is what it all means, in rupees.

Circular Debt in Pakistan, Explained in 60 Seconds

Picture the electricity supply chain as five people standing in a line, each owing the next one:

1. Fuel suppliers (PSO, gas companies) sell fuel to power plants.

2. Power plants (IPPs and state generators) sell electricity to a single buyer, the CPPA — the Central Power Purchasing Agency.

3. The CPPA sells it to the distribution companies (Discos) — Lesco, Iesco, K-Electric's grid purchases, and the rest.

4. The Discos sell it to you.

5. You pay the Disco.

The chain works only if money flows in both directions at the same speed. It does not. The government announces electricity tariffs and subsidies it then fails to fund on time. The Discos lose power to theft and broken wires and fail to collect a chunk of what they bill. So the Discos cannot pay the CPPA in full. The CPPA cannot pay the power plants in full. The power plants cannot pay their fuel suppliers in full. Everyone still owes everyone — nobody declares default — so the unpaid pile sits there, growing interest, while a fresh layer of unpaid bills lands on top every month.

That is the whole trick. It is called "circular" because the debt goes around the circle: the generator's unpaid bill becomes the fuel supplier's unpaid bill becomes the bank's bad loan, and the interest on all of it eventually comes back around as a higher tariff for you.

The 2026 Scoreboard: Rs 1.675 Trillion — and a Bigger Number Nobody Mentions

Let us put the real, official numbers on the table. In written replies to the National Assembly this year, the Power Division confirmed that power-sector circular debt stood at **Rs 1.675 trillion on June 30, 2026**, up from Rs 1.614 trillion a year earlier. A net increase of Rs 61 billion in FY2025-26.

That sounds bad — until you zoom out. In June 2024 the same pile stood at **Rs 2.393 trillion**. Over two years it has been cut by roughly **Rs 718 billion**. The direction of travel is down, and that is worth saying plainly, because most coverage only ever reports the scary stock number.

But the stock number lies by omission. During FY2025-26, the system recorded **Rs 609 billion in gross additions** — new unpaid obligations entering the circle. After Rs 247 billion in reductions (unclaimed subsidies, loan repayments, adjustments) the net flow was about Rs 364 billion, and Rs 302 billion in government subsidy payments brought the closing stock increase down to Rs 61 billion. Read that again: Rs 609 billion of pressure entered the system, and the headline moved by Rs 61 billion. The pile is being bailed out faster than it fills — but it is still filling.

And now the number nobody puts in headlines: **gas-sector circular debt reached Rs 3.631 trillion**, rising by Rs 344 billion in the same fiscal year. The gas pile is now more than double the power pile. It gets almost no coverage because it does not show up as a neat line item on your electricity bill — yet. (More on that below.)

Anatomy of the Leak: Where Rs 609 Billion Came From

The Power Division's FY26 breakdown reads like a crime report against the distribution system:

**Disco inefficiencies — Rs 262 billion.** Theft, line losses, and technical waste at the distribution companies. This barely budged from Rs 265 billion the previous year, which means the single biggest driver of the whole crisis is essentially unchanged. Every year, the Discos burn through more than a quarter-trillion rupees of electricity that is generated, transmitted, and never paid for.

**Weak recoveries — Rs 64 billion.** Bills issued but never collected. Here there is genuine progress: this was Rs 132 billion in FY25. Somebody, somewhere, started collecting.

**K-Electric's non-payment — Rs 194 billion.** The Karachi utility's dispute over what it owes the national grid added nearly two hundred billion to the pile in one year. KE's total outstanding receivables reached **Rs 421 billion** by June 2026 — and here is the detail that should make you angry: Rs 197 billion of that is principal and **Rs 224 billion is accumulated markup**. More than half of what is owed is the cost of having owed it for so long. That is the circle at its purest: late payment generating its own debt.

**Pending Wapda invoices — Rs 63 billion**, tied to amended power purchase agreements.

**Interest on IPP/PHL/circular-debt financing — Rs 14 billion**, down sharply from Rs 58 billion a year earlier. This is the one line where a policy fix is visibly working: the government refinanced expensive old debt with a **Rs 1.225 trillion, six-year financing facility from commercial banks at KIBOR minus 0.9%**. Cheaper borrowing means less interest feeding the circle.

And behind all of it, the original sin: **take-or-pay contracts**. For years the government signed deals with private power producers promising to pay for capacity whether or not the electricity was used — power plants got paid for sitting idle. The government is now renegotiating: terminating the costliest plants, replacing take-or-pay with a hybrid take-and-pay model, waiving late-payment interest, and capping tariff adjustments linked to rupee depreciation. This is slow, lawyer-heavy work, but it attacks the root instead of the symptom.

How This Debt Hides Inside Your Bijli Bill

None of this stays in Islamabad. The circle closes at your meter, through two mechanisms.

The first is the tariff itself. Under the IMF program, Pakistan has committed to full cost recovery in the power sector and zero net accumulation of circular debt — which in plain language means tariffs and adjustments must rise whenever costs do. That is why your bill carries monthly **fuel charges adjustments**: October 2026 bills carried an extra Rs 1.11 per unit (the August adjustment), September bills carried Rs 2.06 per unit (July), plus a 52-paisa-per-unit quarterly adjustment. These are not random fees. They are the circle's interest and fuel costs, itemized. (Our breakdown of [Pakistan's IMF deal and what it means for your money](https://frinjo.me/blog/pakistan-s-imf-deal-explained-what-it-means-for-your-money-in-2026) traces exactly how the October 7 staff-level agreement feeds these adjustments.)

The second is the financing. That Rs 1.225 trillion bank facility retires old, expensive debt — but it is still debt, and it is repaid over six years through the system you pay into. The interest bill fell from Rs 58 billion to Rs 14 billion, which is real relief. But relief is not removal.

**Worked example:** take a household using 300 units a month. In October 2026, the fuel adjustment alone added 300 × Rs 1.11 = **Rs 333** to the bill. The quarterly adjustment added 300 × Rs 0.52 = **Rs 156**. That is Rs 489 in circular-debt-adjacent charges before a single tax is applied — and taxes then apply on top of the total. Over a year, the same household pays roughly Rs 5,900 just in these two adjustments. This is also why electricity drove this year's inflation numbers: [electricity charges rose 58.59% year-on-year for the lowest consumption slab](https://frinjo.me/blog/inflation-in-pakistan-explained-why-your-money-shrinks-2026) in the October SPI data. The circle is not an abstraction. It is the fastest-rising line in the inflation basket.

The Gas Debt Nobody Talks About: Rs 3.631 Trillion

If power circular debt is a crisis, gas circular debt is a crisis with better PR. At Rs 3.631 trillion — up Rs 344 billion in a single year — it dwarfs the power number, yet it barely makes the news.

The mechanics are cousins of the power circle: Pakistan imports expensive LNG priced in dollars, sells domestic gas at tariffs the government keeps politically capped, and loses a share to unaccounted-for gas in leaky networks. The gap between import cost and sale price accumulates, year after year, into a pile nobody has a plan to clear.

Why should you care about a number that is not on your electricity bill? Because piles this size never stay hidden. Gas tariffs, fertilizer prices, and industrial energy costs all sit downstream of this debt. When — not if — the gas circle gets its own "cost recovery" moment, it will arrive as tariff notifications, the same way the power circle arrived as fuel adjustments. The Rs 3.631 trillion is a bill with your name on it; it just has not been posted yet.

Is the Circle Finally Shrinking? An Honest Scorecard

Two honest columns.

**Getting better:** the stock fell Rs 718 billion in two years. Recoveries improved dramatically (Rs 132b → Rs 64b of uncollected bills). Interest costs collapsed (Rs 58b → Rs 14b) thanks to the cheaper refinancing. The IPP renegotiations are attacking the take-or-pay root cause rather than the symptom. And the IMF's zero-accumulation condition, however painful, forces the accounting to stay honest.

**Still broken:** FY26 still added Rs 61 billion net, and Rs 609 billion gross. Disco losses — the biggest single leak — did not improve at all. The K-Electric Rs 421 billion is stuck in a courtroom over a tariff dispute. And the gas pile is growing faster than the power pile is shrinking.

The fair summary: Pakistan is bailing the boat faster than it leaks, but the leak is not fixed. A Rs 718 billion reduction is a genuine achievement; a system that still generates Rs 609 billion of new unpaid obligations a year is not a solved problem.

Three Things to Watch Next

1. **The K-Electric court case.** Rs 421 billion — a quarter of the entire power pile — is frozen behind a tariff dispute in court. A decision either way moves the national number by hundreds of billions overnight.

2. **The IPP renegotiations.** Every take-or-pay contract converted to take-and-pay permanently shrinks next year's gross additions. Watch for completion announcements, not just launches.

3. **The IMF reviews.** The program's zero-net-accumulation condition is the external discipline holding this together. Each review that passes without a waiver keeps the bailing going; each waiver risks restarting the fill.

The Bottom Line

Circular debt in Pakistan is not a mysterious economic force. It is Rs 1.675 trillion of power-sector IOUs and Rs 3.631 trillion of gas-sector IOUs, generated mostly by electricity that is stolen, unbilled, or sold below cost — and then charged back to you through tariffs, fuel adjustments, and quarterly surcharges. The good news, which deserves to be said out loud, is that the power pile is Rs 718 billion smaller than it was two years ago. The bad news is that the machine still manufactures over Rs 600 billion of new debt a year, and the gas pile is quietly outpacing everything.

You cannot vote on the Circular Debt Management Plan. But you can do three practical things: watch the fuel-adjustment line on your own bill (it tells you where tariffs are headed two months early), cut the units you can actually control — every unit you do not use is a unit of levies you do not pay — and keep a real cash buffer, because tariff shocks land monthly now. Our guide to [building an emergency fund in Pakistan](https://frinjo.me/blog/emergency-fund-in-pakistan-how-much-to-save-in-2026) sizes that buffer properly, and if your savings are sitting in an account earning less than the debt machine is costing you, our [2026 monthly-income investment comparison](https://frinjo.me/blog/best-monthly-income-investments-in-pakistan-2026) runs the after-tax numbers on where idle money should actually live.

The circle will keep turning until the leaks are fixed. Until then, at least you know whose bill you are really paying.

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