3 min read
A new PIDE study has revealed that Pakistan’s circular debt crisis has created a deeply unequal electricity pricing system, where the poorest families are bearing the heaviest financial burden despite consuming the least power. The report highlights how inefficiencies, losses and policy delays have turned electricity tariffs into a regressive and unjust cost for vulnerable households.
The Pakistan Institute of Development Economics (PIDE), in a Knowledge Brief authored by Research Economist Dr. Rubina Ilyas, warns that Pakistan’s power sector despite having more than 45,000 MW generation capacity remains financially unstable due to chronic inefficiencies. Circular debt has now crossed PKR 2.6 trillion, pushing electricity prices upward and worsening inequality.
According to the brief titled “Circular Debt and Electricity Tariffs: Unequal Burdens Across Household Quintiles in Pakistan,” DISCOs continue to suffer 16–17% transmission and distribution losses, and collection performance varies widely from 95% in IESCO and LESCO to only 60% in PESCO and QESCO. Delayed subsidies, rising capacity payments and operational weaknesses have kept the sector trapped in a debt spiral.
The national average tariff has nearly tripled over a decade, rising from PKR 12.5/kWh in 2015 to PKR 34.45/kWh in 2025, with 30–35% of the tariff consisting of non-energy costs like surcharges and debt servicing not actual electricity generation.
“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,” said Dr. Ilyas.
The study highlights stark inequality:
- Poorest households (Q1) consuming up to 100 kWh/month now pay PKR 22.44/kWh, with nearly 37% of the bill linked to circular-debt surcharges.
- Middle-income groups (Q3) paying for around 250–300 kWh/month face tariffs of PKR 34.2/kWh.
- High-income users (Q5) consuming over 700 kWh/month pay PKR 46.5/kWh, but the share of non-energy costs shrinks to just 30%, compared to 60% for the poorest.
The brief shows the poorest 40% of households contribute 55–60% of total Debt Servicing Surcharge collections, while the richest quintile earning almost half of national income contributes just 15–20%. This exposes how regressive the tariff structure has become.
The report calls for urgent reforms, including targeting surcharges only to high-consumption users, shifting circular debt payments to fiscal accounts, linking DISCO subsidies with performance, and expanding lifeline protection up to 100 kWh/month.
Dr. Ilyas warns that electricity tariffs have effectively become a quasi-fiscal instrument, where the poor subsidize systemic inefficiencies while wealthier consumers shift to solar. Without governance improvements and fairer tariff design, the circular debt crisis will continue deepening economic injustice and energy poverty nationwide.
