Govt plans 10% power bill surcharge to curb soaring circular debt

ISLAMABAD: Pakistan plans to slap a 10% surcharge on electricity bills in a bid to rein in its ballooning circular debt, a politically risky move aimed at rescuing the ailing power sector and staying on track with IMF-backed reforms.

Finance Minister Muhammad Aurangzeb said during his budget speech that in order to manage the repayment of current circular debt through refinancing, any debt servicing surcharge (DSS) will not be used for paying mark-up or profit but strictly for principal debt repayment. To ensure the success of this plan, a mechanism is being proposed under which the federal government will be authorized to impose a 10 percent surcharge under the DSS. This authority will be valid for a specified period and purpose to increase revenues in times of need.

The surcharge would be levied on power consumers across the country, with proceeds earmarked for settling liabilities of state-run electricity producers and distributors.

To legally cement the move, the government has proposed amendments to the Nepra Act, empowering authorities to impose future surcharges through statutory authority. However, officials said the surcharge may be applied selectively, depending on fiscal dynamics and sectoral needs. Circular debt in the power sector, a chronic cash-flow crisis driven by inefficiencies, under-recoveries, and delayed payments, has climbed to unsustainable levels, threatening the financial health of energy companies and limiting investment.