Industry rejects government claims of circular debt reduction as tariff hike looms

Industry players have rejected the government's claims of reducing circular debt, tariff cuts due to revisions in agreements with independent power producers (IPPs) and the incremental package.

They have called for more reduction in tariffs for revival of the industry. Following a decline in the last two quarters of the previous fiscal year, capacity charges have once again surged as power distribution companies (DISCOs) have sought approval of the National Electric Power Regulatory Authority (Nepra) for the recovery of Rs21.7 billion from consumers for the first quarter (July-September) of the ongoing fiscal year – 2025-26.

During FY25, capacity payments dropped significantly by Rs47.124 billion in the third quarter and Rs53.714 billion in the fourth due to the termination of several power purchase agreements with IPPs.

Nepra conducted a public hearing on Thursday for quarterly adjustments for the period ended September 2025. Industry stakeholders also rejected the government's claim that an increase of Rs79 billion in circular debt was seasonal. They pointed out that the state had recently claimed to have ended the circular debt by striking a deal with banks and imposed a surcharge of Rs3.23 per unit on consumers to retire the debt.

A recent report saying that the circular debt had increased by Rs79 billion during July-September 2025 indicated that it was again building up, they said, adding that it was contrary to claims of the power division minister.

Tanveer Bari, an industry representative, argued that there were claims of a reduction in capacity charges due to revisions in IPPs' agreements, but the hearing showed that the charges were still going up. He called for rejecting the hike in tariff on account of fuel cost adjustment.

Rehan Jawed, representing Karachi industries, said that the government had announced an incremental package for agriculture and industries to encourage the additional consumption of electricity. However, for that the industry would require extra capacity and investment.

"A tariff of Rs22.90 per unit has been announced under the incremental package, but it should be reduced further to Rs16," he said, suggesting that the current tariff would not yield any result.

Jawed emphasised that the state should take the industry on board while drawing up policies, which was critical for the success of such packages. He added that the industry was bearing a cross-subsidy of Rs160 billion to subsidise electricity for other consumers and asked the government to end the cross-subsidy by providing it from the budget.

Speaking on the occasion, Nepra's member technical stressed that the circular debt would never end due to the low recovery of bills and losses in the public sector. Another Nepra official said that the regulator had included a reduction of Rs180 billion in capacity payments in the reference tariff; therefore, it had an impact on tariff reduction due to the revision in IPPs' deals.

DISCOs requested Nepra to approve the recovery of Rs8.41 billion from consumers under the first quarterly adjustment for FY26. According to the petition, the impact of Rs21.702 billion in capacity charges was partly offset by a negative adjustment of Rs13.292 billion sought by DISCOs.

The reduction stems from savings in variable operation and maintenance costs, use-of-system charges, market operator fee and lower transmission and distribution losses under the monthly fuel cost adjustment framework.

All DISCOs, except for Hyderabad Electric Supply Company (Hesco), Peshawar Electric Supply Company (Pesco) and Tribal Electric Supply Company (Tesco), claimed Rs21.702 billion in capacity payments.

Lahore Electric Supply Company reported the highest positive capacity charges of Rs8.453 billion, followed by Multan Electric Power Company with Rs4.347 billion, Gujranwala Electric Power Company with Rs4.226 billion and Faisalabad Electric Supply Company with Rs2.337 billion.

Other companies including Quetta Electric Supply Company, Sukkur Electric Power Company, Hazara Electric Company and Islamabad Electric Supply Company reported capacity charges ranging between Rs1.15 billion and Rs1.77 billion.

Hesco registered the largest negative capacity adjustment of Rs3.212 billion, followed by Tesco at Rs254 million and Pesco at Rs120 million.