KE tariff cut impact

The government's recent move to force a sharp tariff cut on K-Electric offers immediate relief to consumers but risks severe long-term consequences for Karachi's power supply. The decision also exposes the fundamental flaws in privatisation of essential utilities. On the surface, slashing KE's tariff is a populist win, reducing bills and the government's subsidy burden. However, this short-term gain ignores the financial reality of the power utility. KE has declared the new tariff unsustainable, while critics say it has rendered the company technically insolvent due to the loss of about Rs80 billion in revenue.

The long-term backlash could be severe. The company's previously approved grid upgrade plan, which envisioned an outlay of $2 billion over the next seven years, has collapsed. Without predictable revenue, KE cannot finance a long-term maintenance and modernisation plan that has become essential to keep the lights on across Karachi. Meanwhile, KE's Gulf owners were already threatening multibillion-dollar litigation before the tariff eroded any possibility of short-term profitability. One of the major issues that has led to the disputes with KE is the manner of privatisation. Pakistan privatised ownership without creating a deregulated, competitive market, handing a for-profit private company a monopoly and expecting it to act in the interest of consumers rather than shareholders.

Strongarming a monopoly into acting competitively was never a realistic expectation. At this point, the most efficient way to get KE to clean up its act, while also avoiding tipping the boat further, is to force competition on it by allowing private companies to directly sell power to consumers via the KE network, which would give consumers cheaper options while also allowing KE to collect an agreed amount for use of its network, which should then be reinvested in grid upgrades.