The Ministry of Energy has rejected media reports claiming that power sector circular debt increased by Rs. 223 billion during the first five months of the current fiscal year, terming the figures misleading and based on incorrect comparisons.
In a rebuttal issued on January 26, the Ministry of Energy Power Division said the report failed to use up-to-date data.
According to the spokesperson, comparing the circular debt stock as of June 30, 2025 with its position at the end of November 2025 was factually flawed, as the latter covered only a five month period. The ministry said a like-for-like comparison should have been made between July to November 2025 and the same period of the previous year.
The Power Division said the report wrongly linked the variation in circular debt to the bank refinancing agreement signed in September 2025. It clarified that the agreement was designed to replace expensive Power Holding Private Limited debt with cheaper financing and carries a repayment horizon of five to six years, rather than delivering immediate short term reductions.
Officials said circular debt movements between July and November are largely driven by seasonal factors, which typically reverse by the end of the fiscal year. Linking these fluctuations to the refinancing plan, they said, created unnecessary misunderstanding.
The ministry further stated that circular debt flow declined in December 2025, bringing the net increase for the July to December period to less than Rs. 80 billion, significantly lower than figures reported in parts of the media.
It noted that circular debt had already declined sharply during fiscal year 2024 to 25, falling to Rs. 1.614 trillion by June 2025. This reduction, according to the Power Division, was achieved through improved performance of distribution companies, stronger macroeconomic conditions, and the waiver of late payment interest following successful negotiations with independent power producers.
The spokesperson said the government expects the circular debt position to be fully contained by the end of the current fiscal year, with no net addition to the overall stock, in line with historical trends where seasonal variations normalise later in the year.
The ministry also stressed that seasonal changes in circular debt flow have no impact on consumer electricity tariffs and do not affect end user pricing.
Highlighting efficiency gains, the Power Division said inefficiencies in distribution companies during FY 2024 to 25 were reduced by Rs. 193 billion compared to the previous year. During July to December 2025, inefficiencies further declined by Rs. 49 billion compared to the same period last year.
The rebuttal also pointed to the Rs. 1.225 trillion circular debt settlement plan, which is to be implemented over six years. Officials said the plan involves refinancing the existing stock at favourable terms, with the first tranche already received. The ministry added that the stock is expected to be eliminated over the next six years, along with the eventual discontinuation of the debt service surcharge.