Tariff revision threatens KE profitability: analysts

Analysts have painted a gloomy picture for the power utility in Pakistan's largest city, Karachi, warning that the National Electric Power Regulatory Authority's (Nepra) revised decision for K-Electric's (KE) Multi-Year Tariff (MYT) for 2024 to 2030 will cause an annual financial shortfall of Rs79 billion and loss per share of Rs2.9 for FY24.

In May 2023, the regulatory authority had announced a tariff of Rs39.97 per unit, which it revised to Rs32.37 as per its decision of October 20, 2025. It also introduced material adjustments that are expected to have a profound impact on the company's financial health. A report of AKD Securities projects an annual financial shortfall of Rs79 billion and a loss per share of Rs2.9 for FY24, stemming from revisions to the company's previously set tariff.

Meanwhile, another research report from Topline Securities estimates the loss per share at around Rs2.2 in FY25. According to this loss estimate, KE's annual loss may easily reach Rs600 billion or more at the end of the current control period by 2030, just on the basis of financial projections alone.

These estimates take into account changes in return on equity (ROE), a transmission & distribution (T&D) loss rate of 16%, and a recovery ratio of 91.5%, compared to Nepra's benchmarks of 9.71% and 100%, respectively, for FY24. The company is expected to revise its FY24 financials in line with these adjustments. Consequently, it is evident that the KE profit of Rs4 billion reported in September 2025 is most likely to translate into a heavy loss. Nepra has made key changes to KE's ROE for distribution and transmission businesses, moving from US dollar-based tariffs to rupee-based calculations. In its earlier decision, the regulator approved a 14% dollar-based ROE for KE's distribution business, lower than the company's request for 16.67%. This dollar-based ROE had translated into a 25.6% ROE in rupees for FY24.

However, following a review motion filed by the Ministry of Energy and other stakeholders, the regulator has revised the decision, granting KE a 14.47% rupee-based ROE for the seven-year period from FY24 to FY30, with no adjustments for dollar fluctuations despite local currency volatility.

As a result, Topline report estimates that the company is expected to face a financial hit of Rs3-4 billion annually on the ROE of its distribution business. KE CEO Moonis Alvi, in his recent statement, expressed concern over Nepra's significant reduction in MYT. He highlighted that the original tariff, issued in June, was based on over two years of research and verification, but it was revised within a few months.

KE is currently assessing how to manage operations under the new tariff. While the company aims to minimise the impact on consumers, Alvi acknowledged that some effects of the tariff reduction may be inevitable.