The federal government has told the International Monetary Fund (IMF) that its dispute with K-Electric is contributing to financial pressures in Pakistan’s power sector as authorities work to address a circular debt stock of Rs1.675 trillion.
The payment and tariff dispute has emerged as one of the issues being examined as Pakistan seeks to improve financial flows and contain the accumulation of liabilities across the electricity sector.
K-Electric Payment Dispute Under Review
The Power Division attributed part of the Rs61 billion increase in circular debt during the last fiscal year to the payment dispute involving K-Electric, alongside the impact of lower-than-budgeted subsidies.
The dispute centres on payments for electricity purchased by K-Electric from the federal power system.
K-Electric has withheld some payments over outstanding claims related to tariffs and subsidies, creating additional pressure on financial flows between the company and the federal power system.
The government has indicated that it is willing to clear more than Rs100 billion in claims raised by K-Electric, subject to the resolution of tariff-related issues.
Tariff Dispute Adds to K-Electric Uncertainty
The tariff dispute remains unresolved.
The National Electric Power Regulatory Authority (Nepra) and its tribunal rejected K-Electric’s plea seeking a tariff of Rs40 per unit and approved a rate of Rs32.37 per unit.
According to sources familiar with the discussions, the government expects K-Electric to challenge the decision in court.
The tariff issue is significant because the outcome could affect the settlement of outstanding claims between K-Electric and the federal power system.
IMF Examines Future Electricity Tariff Structure
The IMF has also examined how electricity tariffs would operate following the planned privatisation of other distribution companies.
Under Pakistan’s existing uniform tariff system, consumers served by different distribution companies are generally charged the same tariff, while government subsidies help bridge differences in the underlying cost of electricity supply.
The arrangement is now under scrutiny as the government considers changes in the ownership and management structure of distribution companies.
Uniform Tariff Policy Under Review
The IMF has questioned whether the uniform tariff policy will continue after distribution companies are privatised.
Ending the uniform tariff structure could reduce the government’s subsidy burden by allowing tariffs to more closely reflect differences in the cost of electricity distribution.
However, the government has yet to provide a clear position on how the tariff system would operate under a broader privatisation framework.
The issue also has implications for consumers because changes to the uniform tariff mechanism could alter the way electricity costs and subsidies are distributed across different regions.
Government Reports Rs110 Billion in Provincial Arrears
Separately, the government has informed the IMF that a mechanism has been agreed to recover more than Rs110 billion in provincial electricity arrears.
The proposed mechanism involves deductions from provincial shares under the National Finance Commission (NFC) award.
Around Rs110 billion has reportedly been reconciled, while nearly Rs50 billion is expected to be recovered in the near term.
However, implementation could face resistance if provinces do not provide the necessary authority for deductions from their allocations.
Smart Meters Planned to Improve Billing
The Power Division is also installing smart meters as part of efforts to improve billing accuracy and reduce disputes involving provincial governments.
More accurate metering could help identify electricity consumption, improve billing and strengthen the process for reconciling outstanding amounts.
The initiative forms part of broader efforts to improve financial discipline across the power sector.
Circular Debt Remains a Major Power-Sector Challenge
Pakistan’s power-sector circular debt reflects accumulated financial obligations arising from factors including delayed payments, tariff differences, subsidies and other gaps in the electricity supply chain.
The Rs1.675 trillion circular debt stock remains a significant financial issue for the government and the power sector.
The K-Electric payment dispute adds another layer to these challenges because unresolved claims can delay payments and affect liquidity throughout the electricity system.
K-Electric Dispute and IMF Discussions
The K-Electric dispute is therefore linked to broader discussions with the IMF over Pakistan’s power-sector finances.
Resolving outstanding tariff and payment claims could help improve financial flows between K-Electric and the federal power system, while decisions on the uniform tariff structure and provincial arrears will determine how some of the sector’s wider financial pressures are addressed.
For K-Electric, the outcome of the tariff dispute and the settlement of outstanding claims remain important issues as Pakistan continues efforts to contain circular debt and strengthen the financial sustainability of its power sector.