K-Electric has been served a gas supply disconnection notice due to a breach of guarantees, prompting Pakistan's economic managers to call for a speedy resolution of the issue. According to sources, the matter was taken up in a recent meeting of the Economic Coordination Committee (ECC).
ECC Meeting Highlights
Minister for Petroleum Ali Pervaiz Malik informed the ECC that KE had been served with disconnection notices for gas supply because of a breach of guarantees, and urged the Power Division to take notice of the issue. The economic decision-making body directed the ministers for petroleum and power to swiftly resolve the matter.
During discussions, the Ministry of Energy (Power Division) highlighted the background of the case, linking it to surplus funds available under the KE tariff differential subsidy. The Power Division revealed that KE had not paid its electricity dues, leading to the accumulation of around Rs200 billion in circular debt, adding that its tariff was currently sub judice.
Circular Debt and Power Sector Challenges
The ECC was informed that the government of Pakistan was consistently working to address the multifaceted challenges confronting the country's power sector. A key concern remained the persistent accumulation of circular debt, which reached Rs1,924 billion as of May 31, 2026, including payables of Rs873 billion to banks under the circular debt financing. The government had agreed with the International Monetary Fund (IMF) to restrict the circular debt to Rs1.6 trillion by the end of June 2026.
The remaining amount was related to power-sector liabilities payable to power producers, the National Grid Company (NGC), Pak-Matiari Lahore Transmission Company (PMLTC), and others. The higher payables were almost unsustainable as the independent power producers (IPPs) faced mounting pressure to meet their debt obligations and maintain supply chains.
Urgent Cash-Flow Injections Needed
The ECC was told that payments to power producers must be made promptly, as delays would further constrain electricity availability and adversely impact economic growth. Additionally, since payments to the IPPs were secured through sovereign guarantees issued by the government, delays increase the likelihood of guarantee calls and the imposition of late payment surcharges. The disbursement of these subsidies will not only reduce financial costs but also support the achievement of circular debt flow targets. Accordingly, there was a critical requirement for immediate cash-flow injections to stabilise liquidity in the power sector.
The Power Division assured the committee that the court case regarding KE's tariff would be actively pursued in July, in consultation with the Ministry of Law & Justice and the Attorney General of Pakistan.
Subsidy Allocation and Re-appropriation
The ECC was informed that the government of Pakistan, during the just-ended financial year, allocated Rs893 billion to meet power-sector subsidy requirements. Out of this, Rs257 billion was kept in the Finance Division demand No 45 for payments to government-owned power plants (GPPs)/IPPs as state equity. An amount of Rs105 billion had already been released by the Finance Division, and the remaining Rs152 billion was required to be disbursed to the Central Power Purchasing Agency-Guarantee (CPPA-G) before the close of the financial year.
The Ministry of Finance said that fiscal support was being sought for financing the circular debt flow under the Circular Debt Management Plan (CDMP) 2025-26, so it would be prudent to utilise the available funds through re-appropriation within the Power Division. The ECC considered a summary titled 'Release of Rs152 Billion TSG (technical supplementary grant) as Equity in Power Distribution Companies and Re-appropriation of Available Budget' and partially approved the proposal to the extent of Rs54.4 billion after adjusting Rs97.5 billion.
