Biometric cure for circular debt?
Pakistan's energy sector has continued to operate under the persistent shadow of circular debt. Around the start of the fiscal year, the amount stood close to Rs1.7 trillion for the power sector and Rs2.6 trillion for gas, with subsequent data showing that the number would only increase. Recoveries may or may not have improved, but even a tiny miss results in losses of billions. This is an entrenched structural problem that strains government finances, inevitably leading to bailouts and higher tariffs for paying consumers.
There are other implications as well. When one entity in the energy supply chain fails to pay, the burden cascades upstream – from distribution companies to generators and fuel suppliers. While multiple factors contribute to this cycle – including delayed subsidies, capacity payments and transmission losses – it inevitably hurts economic growth. At this juncture, any measure to boost activity is met with hindrances.
The power sector faces the bigger brunt as DISCOs, the entities responsible for collection, are likely seen running like headless chickens trying to meet their recovery targets. But non-payment is the result of weak enforcement mechanisms, incomplete or outdated consumer records, illegal connections and identity masking, and the absence of a verifiable link between consumption and a legally accountable individual.
Yet there are solutions. The introduction of mandatory biometric registration of all utility customers – linking electricity and gas connections to a verified individual identity rather than property – can offer a holistic solution to the issue of recoveries.
Biometric systems prevent fraud as they enable precise tracking for better collections. By streamlining verification, utilities will have reliable data to pursue recoveries, reducing commercial losses and circular debt build-up. The telecom sector has had good success with this, and so has the banking sector where data is linked to other forms of deterrence.
Beyond recoveries, biometric registration allows the government to move towards targeted subsidies, increase the effectiveness of legal recourse, and enhance dispute resolution.
What is heartening is the government's recognition of this process and its initiation in Iesco's territory, where biometric verification is now mandatory for new electricity connections and reconnections. While primarily for onboarding, it builds accurate consumer data to improve billing and recovery across utilities. With the opening of power markets, it becomes even more critical to link responsibility to individuals who can be held accountable.
However, this pilot needs to be scaled at the national level. Recognising a premises as a customer provides a blanket of anonymity that makes enforceability difficult. Switching ownership from a property to a person would show significant improvements in recovery at a global level. Nigeria is using biometric registration of electricity consumers under distribution reforms. This has been used to clean up customer databases and improve billing accuracy, particularly in urban centres with high theft rates. Similarly, South Africa has utilised biometric verification to roll out prepaid metering systems – a key mechanism for reducing defaults, especially in areas where affordability is an issue.
The lessons are clear. In areas where consumer identity is clearly established and verifiable, utility performance improves – particularly in billing and recovery.
Crucially, the initiative must be framed not as an enforcement tool alone, but as a fairness mechanism ensuring that each consumer pays for their own usage, and not for systemic inefficiencies or the defaults of others.
However, biometric registration can only do so much in playing its part in reducing circular debt. Pakistan's repeated experience with circular debt, where temporary financial restructurings have failed to have the intended impact, stresses the need for long-term structural interventions. In a system where trillions of rupees remain locked in receivables, the question is no longer whether reform is needed, but unavoidable.
Biometric registration offers a pathway towards a more accountable, transparent and financially sustainable utility sector – one where the burden is more equitably shared, and the cycle of circular debt can finally begin to break.
THE WRITER IS AN ENERGY SECTOR VETERAN WITH A DEEP INTEREST IN AI