ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has turned down a plea of K-Electric for a significant hike in its multi-year tariff and raised it just by Rs0.05 per unit.
Earlier, the regulator had set the tariff for K-Electric – a private power utility – at Rs12.07 per unit on March 20, 2017, but it did not satisfy the company that filed a review petition for jacking up the tariff.
In its decision, the regulator increased the tariff by Rs0.70 to Rs12.77 per unit, which was still far below the tariff sought by K-Electric.
Then the Ministry of Energy (Power Division) wrote a letter to the regulator, suggesting a further increase in the tariff as a low rate would prove to be a challenge to financial viability of the company.
“The tariff determined by Nepra should not only ensure that K-Electric is able to provide adequate services for its customers, it should also offer an environment conducive to investment to encourage future privatisations as well as expand private sector’s footprint in the power sector,” the ministry emphasised in the letter.
K-Electric had demanded that the tariff should be set at Rs16.10 per unit, but the regulator did not agree and finally raised it only by Rs0.05 to Rs12.82 per unit.
In its decision, Nepra also dismissed a plea for recovery of Rs16 billion worth of losses from power consumers. It also stopped the receipt of Rs8 in bill collection charges and Rs7 in meter rent.
The new multi-year tariff is applicable from July 2016 to June 2023.
Industry officials, however, caution that the regulator’s decision is expected to destabilise the company’s financial and operational vision and has caused alarm among industrial circles that fear disruption in a smooth supply of electricity.
Industrial and business experts have time and again raised concerns that an inadequate tariff will lead to deterioration in services provided by the mega city’s sole power utility.
Any policy decision that affects sustainability of the company will have a cascading effect on all sectors of the society, they say.
The lower-than-expected multi-year tariff has also put a question mark over the agreed sale of K-Electric’s majority stake to Shanghai Electric Power for $1.77 billion – a deal that has been thrown in doubt due to a protracted tariff-setting process.
This will deprive Karachi and its power infrastructure of critical investment that is required to take the company to the next phase in the provision of quality services.
Leading banks had told Nepra at a hearing that the determined tariff would undermine K-Electric’s ability to raise financing for ongoing and future power projects.
Relevant stakeholders pressed the regulator to carefully assess possible repercussions of the revised tariff as a lack of investment would have far-reaching implications, particularly for the industrial consumers of Karachi, who had been to date enjoying exemption from outages.
According to experts, the privatisation of the power utility was a landmark achievement for the federal government and that a large international player is interested in acquiring the company reflects the company’s performance over the years.
Published in The Express Tribune, July 6th, 2018.