Weak performance by power distribution companies added around Rs397 billion to Pakistan’s circular debt in fiscal year 2024–25, as entrenched inefficiencies and transmission bottlenecks continued to inflate costs, according to the National Electric Power Regulatory Authority.
In its State of the Industry Report 2025, Nepra warned that inefficiency has become embedded in the tariff framework, with losses routinely passed on to consumers through higher electricity prices. The regulator said distribution companies recovered only about 93.5% of billed revenue during the year, leaving a substantial gap between earnings and collections. That shortfall ran into hundreds of billions of rupees and directly fed the circular debt, which cascades across the power chain from fuel suppliers to generators.
Nepra noted that poor Disco performance alone contributed Rs 397 bn to the circular debt in FY25. It cautioned that losses have effectively become “normalised” within tariffs, reducing utilities’ incentives to improve while shielding them from penalties for missing performance targets.
Electricity demand peaked at just over 33,000 megawatts, while installed capacity stood at 41,212 megawatts, leaving significant generation capacity idle but still paid for through consumer bills. At the same time, the transmission network failed to carry sufficient low-cost electricity from efficient plants because of congestion and delays, forcing reliance on costlier options.
Public-sector transmission and distribution losses reached about 16.4%, far exceeding the allowed 11.77% limit. Nepra attributed the gap to theft, ageing networks, and poor maintenance. Instead of absorbing these losses, utilities passed the cost directly to paying consumers.
Transmission failures added further pressure. Several major transmission assets remained underutilised due to delays and constraints, yet capacity payments continued as if they were fully operational. This prevented cheaper power from reaching end-users and kept tariffs elevated.
Rigid power contracts also weighed heavily on the system. Under long-term “take-or-pay” agreements, the government must pay producers even when plants are not dispatched. Several thermal plants ran at low capacity but still received full payments, pushing tariffs higher. During the year, the government terminated contracts covering 2,829 megawatts of unused capacity, a move Nepra estimates could save more than Rs900bn over time.
The regulator also recorded a rise in consumer complaints, mainly over billing, faulty meters, and prolonged outages. Faced with high costs and unreliable supply, households and businesses increasingly turned to rooftop solar solutions.
Pakistan’s installed generation capacity stood at 41,121MW as of June 30, 2025, down from 45,888MW a year earlier, following the retirement or decommissioning of inefficient plants. The reduction was partly offset by the addition of 884MW from the Suki Kinari hydropower project. Despite this, underutilisation remained the sector’s core problem.
Thermal and nuclear plants operating under the CPPA-G system recorded an average utilisation factor of just 38.82% during the year. Low utilisation kept capacity payments stubbornly high despite surplus capacity. Nepra said the Capacity Purchase Price averaged Rs14.21 per unit, making it the single largest component of electricity tariffs and accounting for about 82% of the consumer-end price.
Although several independent power producers sought tariff reductions during the year, the benefits were largely offset by poor performance at public-sector plants. Facilities such as the Guddu Power Plant, the Neelum Jhelum Hydropower Project, and multiple WAPDA hydel stations continued to operate below potential, driving up system costs.
Additional pressures came from operational penalties. Part Load Adjustment Charges totalled Rs46.4bn in FY25, while Non-Project Missed Volume costs reached Rs13.3bn. Although both declined from the previous year, Nepra said they remain largely avoidable with better planning and demand management.
Overall, the report concluded that without structural reforms to improve efficiency, curb losses, and fix transmission constraints, Pakistan’s power sector will continue to generate circular debt that ultimately burdens consumers through persistently high electricity tariffs.
