Key agreements with KE delayed amidst cabinet objections
A view of the K-Electric head office, with solar panels at the parking area, in Karachi, Pakistan, January 24, 2023. REUTERS/Akhtar Soomro
Pakistan, on Wednesday, deferred the approvals of four key agreements between the government and K-Electric, the country’s largest integrated power distribution company. This decision arose due to objections raised by some members of a cabinet body during a meeting of the Economic Coordination Committee of the Cabinet.
The drafts under discussion included the Power Purchase Agency Agreement (PPAA), Interconnection Agreement, Tariff Differential Subsidy Agreement, and Mediation Agreement, as per the finance ministry. However, the final approval was postponed due to several observations made by the ECC members, necessitating another huddle.
“The ECC discussed the draft agreements in detail and asked the Power Division to provide further information and detailed working to clarify the observations raised by ECC,” stated the Ministry of Finance press release. The matter will be revisited in the next meeting after the additional information is provided.
The Power Division explained that the agreements were prepared based on the recommendations of the task force formed by the prime minister to address issues between KE and various government entities. If approved, these agreements would resolve longstanding issues, streamlining regular payments to prevent an increase in circular debt, according to the finance ministry.
Prime Minister Anwaarul Haq Kakar had recently committed to resolving the ongoing dispute between KE and the government during his visit to the Gulf countries. The Saudi-based Aljomaih Group is the largest single shareholder in KE. The ECC meeting had been called on the prime minister’s instructions to approve the draft agreements.
A senior finance ministry official mentioned that the ECC would reconvene, possibly on Friday or early next week, with hopes of addressing the members’ observations through the provision of additional information by the Power Division.
An additional concern discussed during the meeting was KE’s need to add extra generation capacity to meet demand, along with timely provision of agreed subsidies. There was a proposal to offer the Jamshoro power plant to KE, but this cannot proceed without privatising the plant set up with public funds.
Read K-Electric sees no impact of inflation on power bills
The four agreements under consideration aim to address power supply issues, provide subsidies, and handle power purchases by KE from the Central Power Purchase Agency. The current arrangement lacks legal backing, and these agreements are crucial to formalise the relationship between KE and the government.
A power purchase agreement between KE and NTDC was signed in 2010 for the sale and purchase of power up to 50MW. The agreement remained in effect for five years until January 25, 2015. However, the Sindh High Court issued a restraining order against the government and NTDC, preventing interference in the PPA. The court directed NTDC to continue supplying electricity to KE.
Sources said that the Finance Division raised objections to the Power Division’s proposal of authorising the finance ministry to sign the tariff differential subsidy agreements on behalf of the federal government. The finance ministry argued that electricity matters fall under the Power Division’s domain, and issues related to generation, transmission, and distribution, including subsidy provision, remain within the Power Division’s mandate. The finance ministry, while supporting the drafts of the agreements for dispute resolution, refused to sign the agreement on behalf of the federal government. It was of the view that these agreements should not impose additional financial burdens beyond budgeted subsidies.
Regarding inflation, the ECC was briefed by the Ministry of Planning, stating that inflationary pressures persist, albeit having declined from its peak of 38% in May 2023. Recent energy price adjustments have interrupted the downward trajectory, causing inflation to spike in November 2023 to 29.2%.
Published in The Express Tribune, December 14th, 2023.
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