'No halt to subsidies for KE consumers'
Additional concerns were raised over capacity payments to K-Electric’s power plants, projected to cost over Rs 82b. PHOTO: FILE
The Ministry of Energy (Power Division) has said that K-Electric (KE) is drawing around 2,000 megawatts from the national grid, which is cheaper than KE's own power generation.
In a statement, a ministry spokesperson said that the National Electric Power Regulatory Authority's (Nepra) review primarily relates to KE's administrative and operational affairs. "KE is currently drawing 2,000 MW from the national grid and may draw even more in the future. This power sourced from the national grid is cheaper than the electricity generated by KE's own plants," the official said.
According to the Power Division, KE consumers – like all other electricity consumers in Pakistan – will continue to benefit from subsidies, because uniform national tariffs remain in place. However, this subsidy will no longer be allowed to be turned into profit for KE merely due to the inefficiency or failure to reduce its losses. "Preventing public-sector subsidy from being converted into private gain is a national responsibility."
Nepra, in a recent review, has issued its determination on the multi-year tariff of KE. However, the spokesperson said, certain elements were presenting the decision in a distorted and misleading manner, attempting to create false impression that the decision was against the interests of electricity consumers in Karachi. "The reality is exactly the opposite."
KE is a private-sector entity and is, therefore, expected to demonstrate performance superior to that of public-sector distribution companies. However, according to the ministry official, when the performance of KE is compared with public utilities such as Islamabad, Faisalabad or Gujranwala electricity companies, these public-sector firms are ahead in critical areas such as the recovery of dues, reduction in line losses and quality of service to consumers.
The spokesperson stressed that the Nepra review was also important in terms of keeping KE profit within a reasonable and justified limit. Prior to that, the company was allowed return on its invested capital in the range of 24% to 30%, linked to the US dollar.
Under the revised framework, the dollar indexation has been terminated as KE assets exist in Pakistan, are denominated in rupees and are associated with the domestic capital market. In addition, it has now been made possible to further reduce the rate of return on KE plants in the same manner as in the case of re-negotiation of power purchase agreements with other independent power producers (IPPs).
The spokesperson noted that an independent consultant appointed by the KE board conducted a study and allowed up to 6.5% in losses to be built into consumer bills. The consultant also disclosed that KE management failed to sufficiently reduce losses.