K-Electric Investors Ask NEPRA to Review Multi-Year Tariff

Investors of K-Electric demand National Electric Power Regulator Authority (NEPRA) to review the Multi Year Tariff (MYT) determination for KE to ensure that all stakeholders’ interests are protected.

An investor of KE Faisal Bengali wrote a letter to NEPRA regarding the issue of MYT and its impact on KE profitability. This letter was received by ProPakistani.

In his letter Faisal said that MYT undermines the economic viability of the company to deliver electricity to consumers. MYT determination has dealt a death blow to the proposed acquisition of KE by Shanghai Electric.

Faisal added,

MYT determination seems seriously flawed carrying grave consequences at multiple levels. The tariff determination has not only extremely adverse implications for the investors, lenders suppliers and employees of KE.

Faisal said that MYT determination also makes a negative impact on its sponsor and minority share holders and investors.

Since the issue of MYT for KE dated 20 march, 2017 by NEPRA the market capitalization of KE has fallen by 31 percent of Rs 77 billion. With company free float of about 9.2 percent, this translates into a loss in value of Rs. 7.1 billion for the minority share holders.

The letter also said that as acknowledged by NEPRA itself, transmission and distribution is the weakest link in the country’s public power distribution system. While lucrative returns offered to IPPs have attracted unprecedented investor interest, the country’s transmission and distribution system remains plagued by underinvestment and inefficiencies.

Without an efficient T&D system, the benefits of capacity additions shall be lost and shall in fact become a burden.

KE which has its own generation capacity of almost 2000 MW buys around 1000 MW from different power producers and owns transmission and distributions network, serving close to 2 million customers but has not paid out any dividends to shareholders for decades. It reported a per tax profit of Rs 25 billion in FY 2016 but that is expected to turn into a loss under the new MYT regime.

It is not just KE economic viability that has been put at stake by the new MYT but NEPRA own credibility as regulators has come under questions.

NEPRA can once again play a leading role in creating a watershed moment in power transmission and distribution market by introducing an investor friendly regime for the T&D segments just like it did three decades ago in defining the role of IPPs in Pakistan’s power sector.