Nepra Highlights Inequity of DSS on K-Electric Consumers

The National Electric Power Regulatory Authority (Nepra) has drawn attention to the inequitable imposition of a Debt Servicing Surcharge (DSS) on K-Electric consumers, notwithstanding the utility’s complete non-involvement in the origination or growth of the power sector’s circular debt.

In its latest sector evaluation, Nepra observed that while it determines consumer-end tariffs intended to fully recover the legitimate revenue requirements of the entire electricity supply chain, persistent under-performance by public-sector distribution companies (DISCOs) continues to jeopardise overall financial viability. Consequently, even compliant utilities and their consumers bear the burden of supplementary levies arising from systemic inefficiencies elsewhere in the value chain.

The regulator emphasised that circular debt would not materialise if all entities adhered strictly to Nepra-approved tariffs and achieved prescribed performance standards. However, entrenched governance deficiencies, inadequate collection rates, and elevated technical and commercial losses within several DISCOs have generated chronic revenue shortfalls, perpetuating debt accumulation.

As at June 30, 2025, the stock of circular debt stood at approximately Rs1.614 trillion—a reduction of roughly Rs780 billion from Rs2.393 trillion a year earlier. Nepra cautioned that this decline does not signify structural progress, as prior reductions have similarly stemmed from ad hoc financial interventions rather than enduring policy or operational reforms.

To service borrowing costs associated with this debt, most electricity consumers (excluding select protected domestic categories) are presently levied a Debt Servicing Surcharge of Rs3.23 per kilowatt-hour, one of the largest single components of the final tariff after capacity and energy charges. This surcharge effectively socialises the cost of sector-wide inefficiencies across all end-users.

Nepra highlighted that K-Electric—the sole privately managed distribution company—does not contribute to circular debt, as it internalises the financial consequences of any losses or recovery shortfalls. Despite this, KE consumers remain liable for the DSS. During FY2024–25, the utility collected and remitted Rs35.76 billion under the surcharge to the government and the Central Power Purchasing Agency (CPPA).

The regulator noted that KE’s transmission and distribution losses have shown consistent improvement since its privatisation in 2005, declining from approximately 40% to below 15% by FY2024–25. Although still above optimal levels, this reduction reflects enhanced governance, accountability, and operational discipline post-privatisation.

Nepra concluded that KE’s trajectory illustrates the advantages of reduced state control and private-sector management, yet stressed that meaningful, sector-wide circular debt containment demands comprehensive structural reforms across all distribution entities. Absent such measures, the regulator warned, the current framework offers limited prospects for sustainable debt resolution.