KARACHI: National Electric Power Regulatory Authority (Nepra) on Thursday marginally revised multiyear tariff for K-Electric up to Rs12.81/kilowatt-hour (kWh), which was still lower than what was demanded by the power utility in a tariff review petition.
Nepra, in a statement, said the multiyear tariff is applicable from July 2016 to June 2023.
The authority said the instant tariff determination is based on “preservation of consumer interest, sustainability of supply and service to the benefit of consumers and sustainability of KE as a public utility”.
“Consumer interest is the Authority’s primary concern when exercising its regulatory mandate, and is a statutory duty imposed on the Authority by the NEPRA Act,” Nepra said. “The fulfillment of the larger consumer interest lies in ensuring security of energy supply. The security correlates with a licensee's sustainability, which is based on the entity’s financial ability to continue performing its obligations and services in accordance with the applicable legal regime.”
The authority, in the revised figure, adjusted all the components of tariffs, including generation, transmission and distribution.
Nepra didn’t allow any provision on account of the doubtful debts in the tariff. But, it allowed bad debts written off at 1.69 percent of K-Electric’s assessed sales revenue, in the base case.
The written-off loans need to be approved by the utility’s board, “which shall certify that KE has made all best possible efforts to recover the amount being written off,” Topline Securities said in a flash note.
In October last year, the authority announced multiyear tariffs for KE at Rs12.77/kWh for seven years. The utility demanded Rs16.10/kWh in multiyear tariffs for the 10 years.
Subsequently, the government submitted reconsideration request for multiyear tariff with the authority on behalf of KE, which said the authority allowed bad debt allowance of just 1.69 percent not recognising the KE’s actual recovery of 87.6 percent as a performance measure in tariff
“This will impact investments planned and will create liquidity issues and due to which there will be a significant increase in load-shedding across the city,” KE said in a Nepra’s document. The utility requested the authority to revise improvement trajectory so that the tariff remains cost reflective and does not lead to insolvency. The authority admitted the KE’s reconsideration request in November 2017.
KE said the recovery loss has not been appropriately accounted for in the determined multiyear tariff. It also demanded a performance-based tariff structure, as implemented in the previous MYT determinations for KE, “wherein the onus to invest and make return rests with KE”.
The utility, in the document, also said the authority determined tariff based on a notional debt equity ratio of 70:30 rather than on actual figures.
“…being a 100 year old company, it (KE) cannot have such a ratio. Further, KE became profitable for the first time in 17 years in the year 2012, prior to which KE had to rely on equity finance due to difficulties in raising debt,” it said. “As such, the debt equity ratio needs to be applied on actual basis.”
KE also said the expected cash shortfall over the tariff control period between 2017 and 2023 will make it impossible for KE to carry out planned investments worth Rs355 billion.
Business houses and civil associations opposed the lower multiyear tariff.
“The reduction in tariff forces KE into a loss making position with significant cash flow issues for the next 7 years, rendering utility operations unviable and jeopardising the planned investments,” the Pakistan Business Council said in the Nepra’s document. “Lenders have also raised their concerns on the company’s ability to honor its financial obligations.”