Rs92bn Circular Debt Drives Push for Integrated Energy Plan

Pakistan’s energy sector is once again at the center of national debate as circular debt linked to fuel supply and power generation swells to Rs92 billion, intensifying pressure on the government to adopt a long-delayed integrated energy plan. The growing liability highlights deep-rooted structural flaws in how electricity, gas, and petroleum sectors operate in isolation, despite being financially and operationally interconnected.

Circular debt, a chronic issue in Pakistan, emerges when inefficiencies, delayed payments, subsidies, and losses create a chain reaction of unpaid bills across the energy supply chain. Power producers are unable to pay fuel suppliers, fuel suppliers delay payments to exploration companies or refineries, and distribution companies struggle to recover dues from consumers. The result is a vicious cycle that drains public finances, discourages investment, and threatens energy security.

Understanding the Rs92bn Problem

The Rs92bn circular debt figure reflects accumulated unpaid obligations, particularly in fuel procurement and capacity payments. Power generation companies (GENCOs and IPPs) face rising costs due to imported fuels, exchange rate volatility, and fixed capacity charges, while distribution companies (DISCOs) continue to suffer from transmission losses, theft, and poor recovery.

Although periodic government bailouts temporarily reduce headline debt numbers, they do little to address the underlying causes. As a result, the circular debt keeps resurfacing, often larger than before. The latest spike has alarmed policymakers because it signals that piecemeal reforms are no longer sufficient.

Fragmentation at the Core

One of the main reasons circular debt persists is the fragmented planning of Pakistan’s energy sectors. Electricity, natural gas, and petroleum are governed by different policies, pricing mechanisms, and regulatory frameworks. Decisions taken in one segment frequently have unintended consequences in another.

For example, subsidized gas tariffs for certain sectors encourage inefficient consumption, forcing power producers to rely on more expensive imported fuels like LNG or furnace oil. Similarly, delays in electricity tariff adjustments increase pressure on government subsidies, widening fiscal deficits and feeding into circular debt.

Experts argue that without a unified framework, such distortions will continue to undermine financial sustainability.

The Case for an Integrated Energy Plan

The rising Rs92bn circular debt has renewed calls for a comprehensive integrated energy plan—a strategy that aligns fuel supply, power generation, transmission, and consumption under a single long-term vision.

An integrated plan would focus on:

Least-cost energy mix: Prioritizing domestic and renewable resources such as hydropower, solar, wind, and indigenous gas to reduce reliance on expensive imports.

Coordinated pricing: Ensuring that electricity and gas tariffs reflect true costs while protecting vulnerable consumers through targeted subsidies rather than blanket support.

Demand-side management: Promoting energy efficiency, smart metering, and conservation to reduce wastage and peak load pressures.

Infrastructure synchronization: Aligning LNG imports, pipeline capacity, power plant commissioning, and transmission upgrades to avoid mismatches.

By addressing the entire value chain together, policymakers hope to curb cost overruns that eventually translate into circular debt.

Fiscal and Economic Implications

Circular debt is not just an energy sector issue; it is a macroeconomic risk. Government interventions to plug financial gaps often involve borrowing or diverting funds from development spending. This strains the budget, fuels inflation, and complicates negotiations with international lenders.

The Rs92bn liability also raises concerns for investors, particularly independent power producers, who depend on timely payments to service debt and maintain operations. Persistent uncertainty increases the cost of capital and discourages future investment in much-needed generation and transmission projects.

An integrated energy plan could help restore confidence by providing predictability and reducing policy reversals that have historically plagued the sector.

Challenges to Implementation

Despite broad consensus on the need for integration, implementation remains difficult. Institutional silos, political considerations, and resistance from vested interests often slow reform. Tariff rationalization, for instance, is politically sensitive, while reducing losses requires confronting theft and improving governance at distribution companies.

Moreover, transitioning to a cleaner and more efficient energy mix requires upfront investment, which is challenging amid fiscal constraints. However, analysts argue that the cost of inaction—measured in rising circular debt and economic instability—is far higher.

A Turning Point for Energy Reform

The Rs92bn circular debt may prove to be a critical wake-up call. Rather than treating it as another short-term financing problem, policymakers increasingly view it as evidence of systemic failure. An integrated energy plan offers a pathway to break the cycle by aligning policy, pricing, and planning across the sector.

If implemented effectively, such a plan could gradually reduce circular debt, stabilize tariffs, and improve energy reliability for households and industry alike. For a country grappling with economic pressures and energy shortages, the stakes could not be higher.

In this context, the push for an integrated energy plan is not merely a policy option—it is becoming an economic necessity.