Pakistan's power sector inefficiency is primarily driven by high transmission and distribution (T&D) losses — officially around 17–20% but effectively higher when electricity theft (kundas) is included — combined with poor bill recovery rates from distribution companies (DISCOs). These losses mean that significant electricity is generated and distributed but not paid for, creating a cash flow shortfall that cascades into the circular debt. Overcapacity (capacity payments) is a contributing but secondary factor.