Islamabad – A new Knowledge Brief by the Pakistan Institute of Development Economics (PIDE) warns that Pakistan’s power sector crisis has evolved into a deep socioeconomic imbalance, where the poorest households are paying the highest price for the country’s inefficiencies. Authored by Dr. Rubina Ilyas, Research Economist at PIDE, the study titled “Circular Debt and Electricity Tariffs: Unequal Burdens Across Household Quintiles in Pakistan” quantifies how circular debt—now exceeding PKR 2.6 trillion—has translated into regressive electricity tariffs that disproportionately impact low-income families.
Despite Pakistan’s generation capacity exceeding 45,000 MW by mid-2025, the sector remains fiscally insolvent. Power Distribution Companies (DISCOs) continue to face 16–17 percent transmission and distribution losses, with bill collection rates ranging from 95 percent in IESCO and LESCO to as low as 60 percent in PESCO and QESCO. These inefficiencies, coupled with delayed subsidies and mounting capacity payments, have trapped the energy sector in a debt-driven cycle of price escalation and financial instability.
The study reveals that the average national tariff has nearly tripled, rising from PKR 12.5 per kilowatt-hour (kWh) in 2015 to PKR 34.45/kWh in 2025. Crucially, 30–35 percent of this tariff is composed of non-energy financial adjustments such as debt repayments and surcharges, not actual power generation costs. “Every rupee of circular debt is being passed on to consumers through uniform surcharges, effectively making the poor pay for inefficiencies they did not create,” notes Dr. Ilyas.
For the bottom income quintile, consuming up to 100 kWh per month, the tariff has increased from PKR 11.72/kWh in 2018 to PKR 22.44/kWh in 2025, of which nearly 37 percent comprises circular-debt-related surcharges. Middle-income households (Q3), consuming around 250–300 kWh per month, now face effective tariffs of PKR 34.2/kWh, while higher-income users (Q5, consuming over 700 kWh per month) pay PKR 46.5/kWh. However, the share of non-energy costs within total bills declines from 60 percent for the poorest households to 30 percent for the richest, illustrating the regressive nature of current tariff recovery mechanisms.
The findings also show that the poorest 40 percent of households (Q1–Q2) pay around 55–60 percent of the total Debt Servicing Surcharge (DSS), even though they earn less than 30 percent of national income, while the top quintile which earns nearly 45 percent of total income, contributes only 15–20 percent of DSS. This inequitable burden underscores that Pakistan’s circular debt problem is not just financial rather it is a distributional injustice embedded within the electricity tariff structure.
The PIDE brief calls for urgent reform to restore both fiscal sustainability and social fairness. It recommends targeting the DSS and Tariff Rationalization Surcharge (TRS) only to high-consumption users (above 200 kWh per month), shifting circular debt servicing to fiscal accounts as sovereign liabilities, linking DISCO subsidies to performance and loss-reduction targets, and expanding lifeline coverage to 100 kWh per month with dynamic targeting for low-income households.
Dr. Ilyas concludes that Pakistan’s circular debt crisis has effectively turned electricity tariffs into a quasi-fiscal instrument, where the poor subsidize inefficiency while the wealthy exit the grid through solar solutions. Without efficiency-based reforms, stronger governance, and progressive tariff restructuring, the circular debt menace will continue to perpetuate economic injustice and deepen energy poverty across the country.
Sohail Majeed is a Special Correspondent at The Diplomatic Insight. He has twelve plus years of experience in journalism & reporting. He covers International Affairs, Diplomacy, UN, Sports, Climate Change, Economy, Technology, and Health.
