K-Electric: Govt, not consumers, to benefit from tariff cut
No relief for end-consumers; power utility to take financial hit.
K-Electric’s new buyer, Shanghai Electric Power, has approached Prime Minister Nawaz Sharif, asking him to take notice of the development which has reduced the incentive for acquisition of the company. PHOTO: FILE
KARACHI:
The federal government will be the ultimate beneficiary of the recent cut in power tariff of K-Electric, and not end-consumers, while the power utility takes a financial hit.
The National Electric Power Regulatory Authority (Nepra) has recently reduced K-Electric’s multi-year tariff by Rs3.5 per unit to an average of Rs12.07 for the next seven years.
For 7 years, K-Electric's tariff cut by Rs3.50/unit
A senior Nepra official told The Express Tribune that a uniform power tariff was imposed on end-consumers across the country and different tariffs set for power companies were not actually charged from the end-users.
“Tariffs for end-consumers are kept uniform across the country by (either) paying a subsidy or collecting surcharges from them,” he said.
Accordingly, the reduction in the tariff of K-Electric consumers will bring down subsidy cost for the government, if it is paying any. In case, the tariff is lower than the uniform rate, then the government will impose a surcharge on the end-consumers.
In both cases - either subsidy payment or surcharge collection - the government will be the beneficiary. There will be no relief for the consumers.
“The monthly tariff adjustment on account of [fuel] cost of power production is a separate matter. Here, the ups and downs in cost will impact the consumers accordingly,” the Nepra official said.
However, the income of K-Electric will shrink following the tariff reduction as earlier it was earning more from the end-consumers because of the higher tariff.
K-Electric argues that Nepra’s recent move will impact its working capital, bring down investment and cause uncertainty pertaining to ongoing projects in the areas of power production, distribution and transmission.
In this backdrop, K-Electric’s new buyer, Shanghai Electric Power, has approached Prime Minister Nawaz Sharif, asking him to take notice of the development which has reduced the incentive for acquisition of the company.
K-Electric says tariff cut will not benefit consumers
The prime minister has already constituted a high-level committee to review Nepra’s new tariff determination for K-Electric.
K-Electric’s share price partially recovered and rose 3.21%, or Rs0.27, to close at Rs8.68 with trading in 42.43 million shares at the Pakistan Stock Exchange on Friday.
Rumours are doing rounds in the market that if the government failed to revise the tariff upwards, the new Chinese investor may withdraw from the acquisition deal with the current majority shareholder of K-Electric.
Dubai-based Abraaj Group sold 66.4% shares to Shanghai Electric Power for $1.77 billion in October 2016. The government has, however, not approved the deal and is waiting for Abraaj to pay off its dues to entities including Sui Southern Gas Company.
When asked about possible fallout of the tariff decision on K-Electric’s sale deal, the Nepra official replied that the regulator had nothing to do with commercial deals.
“We are here to take decisions according to prevailing laws and to protect consumers,” he remarked.
The decision to cut tariff was “purely taken on merit after reviewing all the arguments, including those of K-Electric,” he said.
“K-Electric cannot deviate from its investment commitment as it can recover its investment along with profit from the revised consumer tariff.”
K-Electric will be required 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.
The regulator will conduct a mid-term review to ensure that the proposed investments are carried out.
Published in The Express Tribune, March 25th, 2017.
The federal government will be the ultimate beneficiary of the recent cut in power tariff of K-Electric, and not end-consumers, while the power utility takes a financial hit.
The National Electric Power Regulatory Authority (Nepra) has recently reduced K-Electric’s multi-year tariff by Rs3.5 per unit to an average of Rs12.07 for the next seven years.
For 7 years, K-Electric's tariff cut by Rs3.50/unit
A senior Nepra official told The Express Tribune that a uniform power tariff was imposed on end-consumers across the country and different tariffs set for power companies were not actually charged from the end-users.
“Tariffs for end-consumers are kept uniform across the country by (either) paying a subsidy or collecting surcharges from them,” he said.
Accordingly, the reduction in the tariff of K-Electric consumers will bring down subsidy cost for the government, if it is paying any. In case, the tariff is lower than the uniform rate, then the government will impose a surcharge on the end-consumers.
In both cases - either subsidy payment or surcharge collection - the government will be the beneficiary. There will be no relief for the consumers.
“The monthly tariff adjustment on account of [fuel] cost of power production is a separate matter. Here, the ups and downs in cost will impact the consumers accordingly,” the Nepra official said.
However, the income of K-Electric will shrink following the tariff reduction as earlier it was earning more from the end-consumers because of the higher tariff.
K-Electric argues that Nepra’s recent move will impact its working capital, bring down investment and cause uncertainty pertaining to ongoing projects in the areas of power production, distribution and transmission.
In this backdrop, K-Electric’s new buyer, Shanghai Electric Power, has approached Prime Minister Nawaz Sharif, asking him to take notice of the development which has reduced the incentive for acquisition of the company.
K-Electric says tariff cut will not benefit consumers
The prime minister has already constituted a high-level committee to review Nepra’s new tariff determination for K-Electric.
K-Electric’s share price partially recovered and rose 3.21%, or Rs0.27, to close at Rs8.68 with trading in 42.43 million shares at the Pakistan Stock Exchange on Friday.
Rumours are doing rounds in the market that if the government failed to revise the tariff upwards, the new Chinese investor may withdraw from the acquisition deal with the current majority shareholder of K-Electric.
Dubai-based Abraaj Group sold 66.4% shares to Shanghai Electric Power for $1.77 billion in October 2016. The government has, however, not approved the deal and is waiting for Abraaj to pay off its dues to entities including Sui Southern Gas Company.
When asked about possible fallout of the tariff decision on K-Electric’s sale deal, the Nepra official replied that the regulator had nothing to do with commercial deals.
“We are here to take decisions according to prevailing laws and to protect consumers,” he remarked.
The decision to cut tariff was “purely taken on merit after reviewing all the arguments, including those of K-Electric,” he said.
“K-Electric cannot deviate from its investment commitment as it can recover its investment along with profit from the revised consumer tariff.”
K-Electric will be required 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.
The regulator will conduct a mid-term review to ensure that the proposed investments are carried out.
Published in The Express Tribune, March 25th, 2017.