K-Electric says tariff cut will not benefit consumers

Power utility will file a petition for review of multi-year tariff reduction by Nepra

Our Correspondent March 22, 2017
K-Electric says the current tariff 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. PHOTO: FILE

KARACHI: K-Electric has announced that it will ask the power sector regulator to review its decision of reducing the electricity tariff by Rs3.5 per unit and insisted that the price cut will not benefit end-consumers.

“This is a wrong impression that the cut in tariff is for the end-consumers. There is a [separate] uniform power tariff applicable to the end-consumers throughout Pakistan,” a K-Electric spokesperson said.

When asked why the National Electric Power Regulatory Authority (Nepra) has cut the tariff if it was not for the consumers, the spokesperson replied: “You better ask Nepra...and that’s why we are going to file a petition for review of Nepra’s determination,” she said.

For 7 years, K-Electric’s tariff cut by Rs3.50/unit

Nepra on Monday cut K-Electric’s multi-year power tariff by Rs3.5 per unit to an average of Rs12.07 per unit for the next seven years till 2023.

It also asked K-Electric to make an overall investment of Rs237.6 billion over the seven-year period.

Of this, Rs48.1 billion will go to power generation facilities, Rs69.4 billion will be poured into the distribution system, Rs115.7 billion will be injected into the transmission network and Rs4.2 billion will go to other areas.

A statement issued by K-Electric, a vertically integrated power company, said on Tuesday the multi-year tariff determination issued by Nepra on March 20 “discourages investment and is ultimately not in the long-term interest of the citizens of Karachi.”

“K-Electric is currently reviewing the tariff determination. However, several observations can already be made at this stage.

“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 company said.

The conditions outlined in the determination would result in cash flow constraints that could affect the overall sustainability of K-Electric’s existing operations, it cautioned.

Some of the assumptions in the tariff determination were not reflective of the 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 (power distribution companies) across Pakistan, has already been challenged in various superior courts across the country,” it said.

It may be noted that K-Electric had become a viable entity after 17 years of heavy losses due to significant investments made by the company, supported by the previous performance-based tariff structure, which was positive for both the consumers and the company.

“The previous multi-year tariff was a performance-based model, which encouraged KE to reduce losses and improve supply and services to the population it serves,” it said.

Under the previous tariff model, the power utility invested $1.2 billion in its network to enhance electricity generation and improve transmission and distribution infrastructure.

Govt jacks up oil prices, cuts power tariff

The investment enabled the company to bring transmission and distribution losses down from 36% in 2009 to below 22% in 2016. This resulted in exemption of over 61% of Karachi from load-shedding and provision of uninterrupted power supply to all industrial zones.

“The new I-MYT (integrated multi-year tariff) derails the huge progress made by the company and jeopardises the business plan,” K-Electric said in the statement.

Nepra and the Ministry of Water and Power could not be reached for comments.

Published in The Express Tribune, March 22nd, 2017.

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