Muhammad Arif
Pakistan’s power sector continue to teeter at the brink of fiscal collapse. The federal government’s new Rs 1.225 trillion refinancing plan to “manage” circular debt is being promoted as reform but in reality is no more than debt substitution. The arrangement refinances the liabilities of Power Holding Limited through a bank consortium on slightly softer terms — KIBOR minus 0.9 per cent for six years — injecting liquidity to Independent Power Producers and creditors to avert immediate default and blackouts. That may buy breathing space; it does not repair the lawless and inefficient architecture that produces circular debt in the first place.
Circular debt is not an accident. It is the direct result of systematic breach of statutory and contractual obligations. Distribution companies have for years ignored the performance standards mandated by section 21 and section 23 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (NEPRA Act) and the licence conditions issued thereunder, permitting chronic theft and technical losses. Successive governments have repeatedly violated the principle of cost-reflective tariffs entrenched in section 31(4) of the NEPRA Act by suppressing prices for political mileage while issuing sovereign guarantees and subsidies without lawful appropriation under Article 80 and 84 of the Constitution and section 23 of the Public Finance Management Act, 2019. Public sector consumers — including provincial departments and state corporations — default with impunity, disregarding explicit payment obligations in their supply contracts and violating Rule 3 and Rule 5 of the Public Sector Companies (Corporate Governance) Rules, 2013, which require prudent fiscal management. Each deliberate non-compliance creates a monthly deficit financed by short-term borrowing and eventually converted into sovereign debt. This is not misfortune; it is structured, tolerated illegality.
Changing the lender does not cure a broken covenant. Refinancing leaves the underlying obligations untouched and the sovereign still exposed. Without enforceable reform, the cash hole will refill and taxpayers will shoulder an even larger burden. Worse, the crisis is not isolated to power: the gas sector is replicating the same pathology. Sui companies accumulate receivables because governments allocate indigenous gas and imported RLNG on political grounds and ignore section 8(2)(e) of the OGRA Ordinance, 2002, which requires “economic, efficient and safe” operations and cost-reflective revenue requirements. Cross-subsidies remain opaque and unappropriated. As gas receivables swell, fuel supply to power plants destabilises and debts spiral across both systems. Refusing to integrate the financial flows of power and gas is not merely bad policy; it is negligent and foreseeably harmful to the state’s fiscal stability.
The alternative is neither theoretical nor new. It is what I call religeous adoptation of Governance 5.0 framework or philosophy — a break from legacy (captures) patronage networks toward transparent, technology-driven, and law-anchored control of public utilities. In energy, that requires three non-negotiables as outlined below.
First, the eradication of corruption and a series of captures inside the value chain: merit-based appointments, independent boards with fiduciary accountability, public disclosure of losses, and strict enforcement of section 192 and 197 of the Companies Act, 2017 for negligence and willful default. Boards and managers who allow sustained theft and non-recovery should face legal removal and liability.
Second, elimination of inefficiencies, theft and system losses through digital governance: universal smart metering mandated under NEPRA’s Performance Standards (Distribution) Rules, 2005, real-time energy accounting, geofenced monitoring of feeders, automated disconnection of defaulters, and open publication of recovery data so theft is visible and actionable. The legal tools already exist; regulators must use their enforcement powers under section 26 and 27 of the NEPRA Act without political interference.
Third, truthful pricing and targeted subsidies anchored in statute: tariffs that reflect real cost as required by section 31(7) of the NEPRA Act and section 8 of the OGRA Ordinance, subsidies that Parliament explicitly votes and that reach only the truly vulnerable, and a complete end to blanket price suppression that benefits the powerful and bankrupts the system. Fiscal commitments must be transparent and legally appropriated, not back-stopped by opaque guarantees.
Refinancing absent these conditions is financially reckless. It socialises the cost of persistent misgovernance and deepens moral hazard — the expectation that losses caused by theft, corruption, and political distortion will be absorbed by the public purse. Each new package normalises the idea that law and contract can be suspended whenever the numbers turn inconvenient.
The state still has lawful instruments to break this cycle if it is willing to use them. NEPRA and OGRA possess statutory enforcement powers to penalise non-recovery and mandate efficiency; section 28 of the NEPRA Act allows the Authority to cancel or modify licences for persistent default, while section 11 of the OGRA Ordinance empowers the regulator to issue binding directions to licensees. Corporate governance codes allow removal of delinquent boards. Third Party Access frameworks in gas and power can be operationalised to inject competition and discipline. Smart technology can expose and eliminate non-technical losses. But none of these are activated when expedient refinancing is easier.
Circular debt has become a constitutional indictment, proof that the state cannot or will not enforce its own laws against its own entrenched inefficiency and corruption. Governance 5.0 demands the opposite: a clean break from patronage and protectionism, an end to systemic theft and losses, and a legally enforced architecture where cost, performance, and transparency are non-negotiable.
The Rs 1.225 trillion just raised is not reform; it is borrowed time. Unless it is explicitly tied to enforceable conditionalities, mandatory loss reduction targets, automatic subsidy caps, professionalised boards, integrated power-gas financial planning, and prosecution of theft — it will be consumed by the same leakages that created the last debt mountain. Debt surgery without governance transplant is not cure; it is relapse on schedule.
Pakistan’s citizens already pay one of the highest real costs in Asia for unreliable energy because they are financing inefficiency and theft disguised as “support.” To ask them to underwrite another refinancing without demanding structural legality and Governance 5.0 is to punish honesty and reward failure. If there is to be another trillion-rupee rescue, it must mark the start of a rules-based, corruption-free, digitally enforced, fully transparent energy market — or it will mark only the next, bigger bailout in a cycle that has gone on too long.
“The Writer is: Former Member Gas- OGRA, petroleum lawyer, governance advocate, consumer and human rights activist. [email protected]”
