Karachi: Pakistan's power circular debt has decreased by PKR 12 billion in the first five months of the fiscal year 2025, offering a potential boost to the country's energy sector. This decline is attributed to a combination of factors, including improved recoveries, fiscal payments by the government, and adjustments in tariffs.

According to a statement by AKD Securities Limited, the decrease in circular debt is primarily driven by elevated previous year adjustments (PYA) recoveries, negative quarterly tariff adjustments (QTA) and fuel cost adjustments (FCA), as well as enhanced payment recoveries. The government of Pakistan has also contributed through fiscal payments aimed at mitigating the debt.

The reduction in electricity costs, prompted by increasing demand and renegotiation of independent power producer (IPP) contracts, alongside improved efficiencies in distribution companies (DISCOs), is expected to facilitate the gradual clearance of the outstanding circular debt. This, in turn, could result in lower consumer tariffs.

The easing of power circular debt is anticipated to benefit several companies within the energy sector. Those likely to gain include Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO), Hub Power Company (HUBC), and Nishat Power Limited (NPL). Additionally, it is expected to enhance the receivable recoverability for listed gas-distribution companies such as Sui Northern Gas Pipelines Limited (SNGP) and Sui Southern Gas Company (SSGC).