Power sector Regulator National Electric Power Regulatory Authority (NEPRA) and the country’s only private power utility Karachi Electric (KE) clashed over the multiyear tariff (MYT) issue recently. Multiyear tariff was announced by NEPRA on Monday, 21, March, with KE raising its objections on the MYT less than 24 hours later.
A statement issued by the KE spokesperson says that,’MYT Determination has no impact on consumer tariff and is against the long-term public interest.’
“The new MYT derails the huge progress made by the company and jeopardizes the Business Plan.” KE claimed.
Experts say that the Authority may wish to curb the hefty profits enjoyed by the utility. KE’s own financial statement says that, during 2015 alone KE made a profit of Rs. 28 billion, which is more than double the Rs13 billion the power company made in 2014. KE’s financial statement of 2016 was pending due to the MYT application that is under review by NEPRA.
In its announcement on 20th March, NEPRA refused to consider the many demands made by KE in the MYT application. In its application KE demanded to rise the tariff up to Rs. 16.26 h K/W but instead, NEPRA cut the tariff from Rs. 15.57 hK/W to 12.07h K/W.
NEPRA also set very tough standards for KE for MYT:
- 7 year period covered under the determination as opposed to the request for ten years
- Raising of T&D benchmark from 15% currently to 20.4% in FY17
- Allowance of writeoffs upto 1.78% of Electricity sales revenue in any given year
- Planned CAPEX of PkR237.6bn allowed for in the tariff and adjusted in the base tariff
The Authority also bound KE to invest in its system a sum of Rs.237.6 billion in the next 7 years. KE will have to invest Rs. 48.1 billion in power generation, Rs, 69.4 billion in its distribution system, Rs.115.7 billion in transmission and Rs. 4.2 billion in its other projects.
KE says that the Integrated Multi-Year Tariff Determination issued by NEPRA on March 20, 2017 discourages investment and is ultimately not in the long-term interest of the citizens of Karachi. Moreover, contrary to certain reports, the determination has no impact on consumers end tariff.
“K-Electric is currently reviewing the Tariff determination. However, several observations can already be made at this stage.” the KE announcement says.
KE believes that the following impact will occur with the implementation of the MYT.
The current determination includes no incentive to continue to invest in improving power supply to the people of Karachi and creates significant uncertainty around current and future projects – which will lead to widening the demand-supply gap.
The conditions outlined in the determination will result in cash flow constraints that could affect the overall sustainability of KE’s existing operations.
Some of the assumptions in the tariff determination are not reflective of ground realities. For instance, the expectation of 100% recovery and the conditions set forth to ascertain bad debts are not realistic.
This assumption, earlier applied by NEPRA to DISCOs across Pakistan, has already been challenged in various Superior Courts across the country.
The power utility maintains continuous dialogue with the NEPRA and will file detailed review of the determination with the Authority.