Fuel prices roll back after 2 weeks of hikes

ISLAMABAD: Pakistan’s power sector circular debt increased by Rs364 billion during fiscal year 2025-26, highlighting persistent weaknesses in the electricity supply chain despite substantial government subsidies and efforts to contain the buildup of unpaid liabilities. According to the circular debt report for June 2026, the increase was significantly higher than the previous year, when the debt had risen by around Rs45 billion. The latest increase represents a surge of roughly 709% year-on-year in the annual flow of circular debt. The Power Division has not yet formally uploaded the one-page circular debt report for June 2026 on its official website. The latest figures indicate that structural problems, including distribution company inefficiencies, weak bill recovery, payment disputes and delays in tariff adjustments, continue to generate fresh liabilities in the power sector. The development comes despite the government’s efforts to contain the debt through budgetary support and subsidies. IMF target and government commitments The International Monetary Fund (IMF) had permitted Pakistan to record up to Rs400 billion in circular debt flow during the year, while simultaneously requiring the government to take measures to prevent the accumulation of new liabilities and eventually bring the flow down to zero. Under the IMF programme, the government has been relying on tariff adjustments, subsidy rationalisation and other reforms to improve the financial health of the electricity sector. However, the latest increase suggests that governance and operational problems remain a major obstacle to achieving a sustainable reduction in circular debt. The government provided approximately Rs302 billion in subsidies aimed at supporting the power sector and reducing the debt burden. However, the amount was insufficient to maintain the circular debt stock at the level of Rs1.614 trillion recorded at the end of June 2025. As a result, the debt stock recorded a net increase of around Rs61 billion during the year. The Power Division had earlier stated that the federal government allocated Rs893 billion for the power sector in the FY2025-26 budget. However, around Rs98 billion of the allocated amount was not released, affecting the government’s ability to reduce the outstanding liabilities. A Power Division spokesperson said that if the entire budgeted allocation had been released, the circular debt stock could have fallen further to around Rs1.577 trillion. The funding shortfall, according to the official, contributed to the Rs61 billion increase recorded during the year. Distribution companies remain a major source of losses Inefficiencies within power distribution companies continued to be one of the biggest contributors to the accumulation of circular debt. The government incurred approximately Rs262 billion in losses during FY2025-26 because of inefficiencies in distribution companies. The amount was only around Rs3 billion lower than the previous year, indicating that little progress has been made in addressing operational weaknesses. Another Rs64 billion was added to the circular debt because of lower electricity bill recoveries. Although significant, this amount was around 51% lower than the corresponding figure recorded in the preceding year. The figures underline the financial pressure created by electricity theft, transmission and distribution losses, weak collection systems and inadequate enforcement against non-paying consumers. Privatisation of distribution companies The government has initiated the process of privatising three relatively profitable distribution companies — Faisalabad Electric Supply Company, Gujranwala Electric Power Company and Islamabad Electric Supply Company. However, the proposed privatisation is not expected to immediately resolve the broader circular debt problem because a substantial portion of sector losses originates from other distribution entities. Earlier, the government had considered a model under which profitable distribution companies would be combined with loss-making entities before privatisation. The plan, however, was subsequently abandoned in favour of offering comparatively stronger companies separately. Experts have repeatedly argued that privatisation alone cannot eliminate circular debt unless the underlying issues of electricity theft, poor recoveries, governance and operational losses are addressed across the entire distribution network. K-Electric dispute adds to debt Payment disputes with K-Electric also contributed substantially to the increase. According to the report, approximately Rs194 billion was added to the circular debt because of non-payments by K-Electric. The company’s outstanding payments are linked to a dispute concerning the delayed finalisation of its multi-year tariff by the National Electric Power Regulatory Authority. The prolonged disagreement has created financial pressure throughout the power supply chain, adding to the accumulation of unpaid liabilities. In addition, around Rs75 billion was added to the circular debt because of delays in tariff adjustments. The government, meanwhile, made payments of approximately Rs129 billion against principal loans of the power sector. Without these payments, the annual circular debt flow could have exceeded Rs600 billion, according to the figures. The Power Division also benefited from a reduction of around Rs98 billion in the circular debt flow because of subsidy payments. Interest payments add further pressure Interest charges also contributed to the accumulation of liabilities, adding around Rs14 billion to the circular debt during the fiscal year. These financing costs ultimately increase the burden on consumers because the cost of servicing the sector’s outstanding liabilities is recovered through electricity bills. Consumer groups have frequently criticised the practice, arguing that households and businesses that regularly pay their electricity bills are effectively being charged for inefficiencies, theft and non-payment elsewhere in the system. Subsidies and burden on consumers The government’s continued reliance on subsidies has helped prevent an even larger accumulation of circular debt, but it has also placed pressure on the national budget. The power sector received hundreds of billions of rupees in subsidies during the year, while the government simultaneously pursued tariff increases and other measures intended to improve cost recovery. The contrast has raised questions about whether existing policies are addressing the underlying causes of circular debt or merely shifting the burden between consumers, the federal budget and power-sector entities. The government has also been under pressure to address similar financial problems in the gas sector. Although no comparable subsidy was provided for the gas sector, the authorities were expected to prevent a further increase in its circular debt. The government reportedly refrained from passing the full reduction in gas prices on

KARACHI: Selling pressure intensified at the Pakistan Stock Exchange (PSX) on Tuesday as investor sentiment weakened amid growing uncertainty over the prospects of a peace agreement between the United States and Iran and the reopening of the strategically important Strait of Hormuz. The benchmark KSE-100 Index came under pressure during the trading session, losing more than 1,300 points as investors remained cautious and reduced exposure to major stocks across several sectors. At around 2pm, the KSE-100 Index stood at 179,996.62 points, showing a decline of 1,313.66 points, or 0.72%, from the previous close. The market witnessed broad-based selling, with several major sectors contributing to the decline. Automobile assemblers, cement companies, commercial banks, fertiliser manufacturers, oil and gas exploration firms and oil marketing companies (OMCs) remained under pressure. Several index-heavy stocks also traded in negative territory. Prominent companies including HUBCO, Mari Petroleum (MARI), Oil and Gas Development Company (OGDC), Fauji Fertilizer Company (FFC), Habib Bank Limited (HBL), MCB Bank, Meezan Bank (MEBL) and United Bank Limited (UBL) were among the stocks weighing on the benchmark index. Previous session also ends lower The latest decline follows a weak close in the previous trading session. On Monday, the PSX initially moved higher but lost momentum during the second half of the session as investors opted to book profits in heavyweight shares. The KSE-100 Index eventually closed at 181,310.28 points, down 119.74 points, or 0.07%. The continued weakness suggests that investors are closely monitoring developments in international markets, particularly the situation surrounding oil supplies and the Strait of Hormuz. US-Iran tensions keep markets on edge Global financial markets remained unsettled on Tuesday as hopes for an agreement between Washington and Tehran appeared to fade. Negotiations aimed at ending the conflict and restoring normal shipping through the Strait of Hormuz have encountered fresh difficulties. US President Donald Trump on Monday responded to Iran’s conditions for a possible peace agreement by putting forward his own demands, including calls for compensation related to deaths and losses associated with wars, attacks and protests. The tougher rhetoric has raised concerns that diplomatic efforts could take longer, potentially prolonging disruptions around the crucial maritime route. The Strait of Hormuz is one of the world’s most important energy corridors, and prolonged disruption to shipping through the waterway could have significant consequences for crude oil supplies and global energy prices. Oil prices climb to highest level since July 31 The uncertainty surrounding the situation was reflected in international oil markets. Brent crude futures climbed to around $88 per barrel, while US West Texas Intermediate crude futures rose to approximately $82.45 per barrel. Both benchmarks reached their highest levels since July 31 after recording gains of roughly 5% during Monday’s trading session. Higher oil prices are a major concern for economies that depend heavily on imported energy. For Pakistan, sustained increases in global crude prices could increase the country’s import bill and place additional pressure on external accounts, inflation and domestic fuel prices. The rise in energy prices is also being closely watched by investors because higher input costs can affect corporate profitability and influence monetary policy expectations. Asian markets remain cautious The uncertainty was not limited to Pakistan. Asian equity markets moved within a narrow range as investors assessed the potential impact of rising energy prices on inflation and economic growth. MSCI’s broadest index of Asia-Pacific shares outside Japan moved between gains and losses before trading modestly higher. South Korea’s Kospi also recorded a slight increase. However, the escalation in tensions around the Gulf kept overall market sentiment fragile, with investors remaining wary of further developments that could affect energy supplies and global trade. US stock futures were also slightly positive on Tuesday. Nasdaq futures rose around 0.28%, while S&P 500 futures gained approximately 0.1%, following a weaker session on Wall Street on Monday. Inflation data in focus Investors are also awaiting the latest US consumer price data, which could provide further clues about the direction of interest rates and inflationary pressures in the world’s largest economy. The increase in crude oil prices has added another element of uncertainty ahead of the inflation report. A sustained rise in fuel and energy costs could complicate efforts to bring inflation closer to central-bank targets. For Pakistani investors, the combination of geopolitical uncertainty, higher global oil prices and pressure on heavyweight shares is likely to remain a key factor influencing trading sentiment in the near term.