For over three decades, Pakistan’s energy sector has grappled with the persistent issue of circular debt, casting a long shadow on the nation’s economic growth and prosperity.

The intricate web of financial challenges, particularly in the power and gas sectors, has become an ever-growing burden on the back of the government, necessitating a closer examination of the root causes and proposed solutions.

In the power sector, the ominous presence of circular debt is epitomized by the Central Power Purchasing Agency (CPPA) withholding payments due to a cash flow deficit. This not only creates a cash crunch for CPPA but also triggers a ripple effect throughout the supply chain.

The primary culprits behind circular debt include insufficient revenue recovery (read theft/line losses), inadequate sector governance, delays in tariff determination, lag in fuel price adjustments, and rapidly ageing infrastructure.

The domino effect of these issues manifests as outstanding receivables in the books of various companies within the supply chain, encompassing fuel suppliers, generation companies, and transmission entities. Compounding the challenge is the burgeoning gas circular debt, which has seen a surge in recent years.

Initially attributed to natural gas, the debt’s composition has evolved, now encompassing a significant share of Regasified Liquefied Natural Gas (RLNG). The differential margin, resulting from disparities between government-approved tariffs and those recommended by OGRA, further compounds the mounting debt.

Unaccounted for Gas (UfG) and gas theft contribute to the increasing burden on distribution companies. Subsidized tariffs, coupled with delays in subsidy release, weaken the capacity of distribution companies to repay the E&P companies and RLNG suppliers such as PSO........

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