As on March, 2012 circular debt stands on Rs. 400 billion.
Circular debt is accumulated because consumers of electricity are paying less for every unit but the supplier PEPCO has to pay higher price to the power generation companies. This gap is filled by subsidy given by the government of Pakistan which has very weak financial health. This gap creates cash flow problems for Pepco because it receives less cash than it has to pay to generation companies and its constantly increases which results in further circular debt. Therefore govt has to increase the price of electricity to pass on its burden because it can not itself sustain this huge cost due to lack of resources because it is incompetent and negligent to collect taxes to increase its financial health .
The reason behind this problem is that we are producing electricity from thermal sources not much from hydel. Thermal is very very costly than hydel. Therefore govt increases price that causes inflation. This problem was sown when Benazir started IPPs to get kickbacks and commissions when we did not need electricity. She did not start to build a dam for cheaper energy for future needs because PPP people could not get bribes from that. We started to buy that costly power which we did not need at that time and tried to export it to India. If she had started a big dam it would have also provided a lot of water for irrigation and our rural people and country as a whole would have been a lot prosperous. Furthermore it would have saved people of Pakistan from devastating floods and happen again and again besides generating cheap electricity.