The talk of ending exclusive rights of K-Electric before schedule is sending a negative signal to potential domestic and foreign investors, which can deal a blow to the government’s privatisation programme and more private investment in the country’s transmission and distribution sector, said an official of the power utility.
Such discussions may further slow the already delayed acquisition deal through which Shanghai Electric Power would acquire about 66.4% shares in K-Electric from the Abraaj Group, he said. An agreement has already been signed by both parties back in October 2016.
The deal got stuck due to tariff adjustments and some other financial matters and as a result the potential investment which Shanghai Electric intends to make in K-Electric has now stalled. Talking to a group of journalists, K-Electric Chief Executive Officer Moonis Alvi said that opening the market for competition before 2023 would lead to possible deterioration in the transmission network and the companies’ overall plans.
“It is yet to be decided whether new distributors/ suppliers will follow the government’s uniform tariff or a cross-subsidisation policy ie will they sell power to low-income groups at a lower tariff and charge higher tariff from high-end consumers (industrial, commercial, bulk and high-end residential consumers). Without a policy that safeguards rights of all sections of the populace, how will it be ensured that all groups are protected,” Alvi said.
He added that while new entrants would add to electricity generation in the market, mostly for high-income groups, the infrastructure (transmission and distribution) would still be K-Electric’s, which would be obligated to provide wheeling services to the new distribution licensees. Hence, all network-related investment and performance obligation would remain with K-Electric, he said.
“This may lead to decreased cost of electricity for high-income groups but the increase will have to be borne by the consumers who are living in areas that are already low-income and vulnerable and while this is up in the air for level playing field, K-Electric should also be allowed to choose consumers on their own choice,” the CEO added.
K-Electric is the only distribution company privatised by the then government back in 2005. The move was in line with the advice of global financial institutions and local as well as global power sector experts, who called for privatising the distribution companies for a free market economy in the electricity market of Pakistan.
However, for the past couple of months, the power utility has been in the limelight for frequent and prolonged power outages. Following this, the National Electric Power Regulatory Authority (Nepra) initiated proceedings to terminate the company’s exclusivity while the Supreme Court also asked Nepra to complete its determination in accordance with the law.
K-Electric has exclusive rights to sell electricity in its service area till July 2023, as per its distribution licence.
The company management said all such recent developments and reduction in power off-take on account of decrease in the good consumer base would adversely affect the company’s ability to seek financing and investment in power projects and result in further deterioration of the system, which would immediately impact vulnerable areas of Karachi.
Published in The Express Tribune, October 11th, 2020.
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