ISLAMABAD: The Auditor General of Pakistan (AGP) has asked the Power Division to devise a detailed plan to clear circular debt of power sector through operational and financial efficiency and share it with the Audit. According to impact audit of unbundling of power, the Audit has stated that the Strategic Plan for the Privatisation of the Pakistan Power Sector (1992) mandated the reorganization of the power wing into discrete, autonomous profit center with independent management and balance sheets. The plan emphasized that lasting improvements in efficiency require managerial autonomy and profit incentives to reduce losses, theft, and accounts receivable. It further established that socially desirable policies, such as “lifeline” rates, should be funded through direct and transparent GoP budget subsidies rather than through tariff cross-subsidies or hidden financial adjustments. READ ALSO: Circular debt rose Rs79bn on ‘seasonable, operational factors’: Power Division During the impact audit of unbundling of WAPDA, it was observed that despite the clear directive for DISCOs to operate as self-sustaining commercial entities, there was a persistent inability to curb the accumulation of circular debt which was instead periodically shifted to Power Holding (Private) Limited (PHL) which was incorporated in 2009 to arrange bridge financing for repayment of liabilities of DISCOs for settling the circular debt of power sector. Audit noted that while fresh loans were raised to settle power sector payables amounting to Rs. 1.602 trillion a substantial portion of this activity (Rs. 406.434 billion) was used to adjust previous facilities. “This cyclic of “debt parking” has not cleared up the liability, as evidenced by an enduring outstanding balance of Rs. 659.646 billion at the close of the reported period. The primary cause of this condition was the inability of DISCOs to transition into the autonomous business units envisioned in Phase II and III of the Strategic Plan,” Audit observed. Audit further stated that management has not achieved the necessary “managerial autonomy” to implement cost-cutting measures This practice exerted an acute financial drain on the national economy, as significant portions of the GoP development budget were diverted to cover power sector deficits. As these parked debts must be serviced, law-abiding consumers were burdened with additional surcharges and penalizing efficient users for the “operational losses” of the DISCOs,” Audit recommended that Power Division should devise a detailed plan to clear circular debt of power sector through operational and financial efficiency and such plan may be shared with Audit. According to official documents, Power Division has already reduced the stock of circular debt to Rs 1.614 trillion from Rs 2.5 trillion by raising Rs 1.225 trillion from commercial banks, to be repaid through collection of Debt Service Surcharge (DSS) at Rs 3.23/kWh for six years. Power Division has also shared its performance of first half ( July-December) 2025-26 with the International Monetary Fund (IMF), which was at par with the commitments with the Fund. Circular debt which was Rs 2.393 trillion as of June 30, 2024 was planned to decline to Rs 1.2 trillion by June 27 but its target has been revised to Rs 1.346 trillion for June 27. The government recently approved Technical Supplementary Grant (TSG) of Rs 200 billion to keep the circular debt in accordance with the target agreed with the IMF. The injection of Rs 200 billion was structured as an investment in the equity of Power Distribution Companies (DISCOs) to address cash flow constraints. Copyright Business Recorder, 2026