MEPCO's Rs119b investment plan receives flak

Power utility suffers loss of Rs41.8b owing to poor recoveries, higher line loses

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ISLAMABAD:

Multan Electric Power Company (Mepco) has incurred a financial loss of Rs41.8 billion due to poor recovery of bills and higher line losses.

The shocking disclosure was made during a public hearing on Mepco's proposed five-year investment plan, amounting to Rs119 billion and covering fiscal years 2025-26 to 2029-30. The hearing was held at Nepra headquarters, where the session was chaired by the chairman of the power-sector regulator.

The public power utility's Rs119 billion investment plan came in for criticism as the company had failed to achieve its previous fund utilisation target. Mepco outlined plans to finance 83% of proposed projects through internal resources and 13% through debt.

At the hearing, the company gave details about its financial performance, free cash flow position and challenges in meeting previous targets.

Nepra highlighted that Mepco utilised only 60% of its previous investment programme, falling short of achieving transmission and distribution (T&D) loss reduction targets.

Instead of restricting its T&D losses to the prescribed 11.83%, Mepco registered losses of 15.18%, which resulted in a financial hit of Rs22.6 billion. Additionally, its recovery ratio for fiscal year 2024 was reported at 97.2%, causing a loss of Rs19.2 billion.

The regulator voiced concern over Mepco's technical challenges, including low-voltage losses at 132-kilovolt grid and 11kV feeders.

According to data presented at the hearing, Nepra said eight transmission lines and 12 power transformers in areas such as Arifwala, Sahiwal, DG Khan, Rahim Yar Khan, Vehari and Khanewal were overloaded. Furthermore, 202 feeders were reported as overloaded, with 102 feeders suffering losses in excess of 15%.

Nepra expressed its reservations about Mepco's ability to execute the proposed investment plan, given delays in previous projects, such as transmission grid upgrades, which led to a negative cost impact on consumers.

As electricity demand had dropped, Nepra questioned the necessity of Rs119 billion investment and directed Mepco chief executive officer to rationalise the plan to prioritise consumer relief.

It underscored the need for timely completion of approved projects from prior years, emphasising accountability and efficient resource utilisation to meet consumer expectations.

Electricity rates in Pakistan have increased by 268% between November 2010 and December 2023. The average tariff rate has risen from Rs9.2 to Rs24.72 per kilowatt-hour.

Keeping that in view, the Lahore Electric Supply Company (Lesco) has filed a petition with the regulator for revision in security deposit rates for consumers desiring to get new electricity connections.

It has cited a significant increase in average tariff rates over the past decade. The proposed changes are aimed at better aligning security deposits with current billing trends and protecting from the risk of consumer default.

Under the new proposal, security deposit rates for all consumers, excluding urban domestic users, will be set at two and a half months of average billing.

For urban domestic consumers with properties up to 10 Marlas, the security deposit requirement will be raised to cover three months of billing. For properties exceeding 10 Marlas, the rates will be pegged at 1% of the land value, based on the Federal Board of Revenue rates.

Lesco has also requested modification to existing rules to allow the filing of consolidated petitions for security deposit rate adjustments in tandem with its annual reviews. This approach is expected to streamline the process and ensure timely updates to deposit requirements.

The proposed revisions are targeted at addressing the gap by ensuring that security deposits adequately cover potential arrears in case of payment defaults. As part of its policy under Clause 5.1.1 of the Consumer Service Manual 2021, Lesco plans to issue demand notices for security deposits at updated rates, which will be deposited by applicants in the designated bank branches.