K-Electric seeks major tariff adjustments amid criticism

ISLAMABAD: K-Electric has petitioned the National Electric Power Regulatory Authority (Nepra) for significant tariff adjustments, seeking a 15 percent dollarized return on equity and 16.67 percent for transmission and distribution over the next seven years under its multi-year tariff (MYT) plan. The utility, citing benchmarks in the Independent Power Producers (IPPs) sector, argued for indexed quarterly adjustments similar to the Lahore-Matiari HVDC transmission project.

However, this stance and comparison to IPPs drew strong criticism from representatives of the Karachi business community.

In a public hearing held Thursday, Nepra reviewed the K-Electric’s proposals for distribution, transmission and supply tariffs spanning fiscal years 2023-24 to 2029-30. The company emphasized continuity with previous tariff provisions and Rs10.69/unit tariff increase from Rs34 to Rs44.69 per unit. Breakdowns included transmission charges of Rs3.48/unit, distribution charges of Rs3.84/unit, supply charges of Rs5.96/unit and generation costs totaling Rs31.42/unit.

To meet financial needs, K-Electric plans to finance 75 percent of its requirements through foreign loans due to limited local funding availability exacerbated by recent national credit downgrades. The company also sought tax concessions on interest payments and highlighted ongoing efforts towards operational restructuring.

Meanwhile, residents of Karachi expressed dismay over extended power outages in the nation’s financial hub, with consumers in several areas experiencing prolonged loadshedding. Despite full recoveries in certain zones, the issue persists.

Imran Shahid, representing Jamaat-e-Islami Karachi, voiced apprehension over the 18-hour daily power cuts in Karachi, urging Nepra to deploy its team to prevent worsening conditions. There is an emergency-like situation in hospitals as a result of prolonged outages that affected hundreds of residents and several people lost their lives.

In response, Nepra Chairman Waseem Mukhtar acknowledged that an investigation has been launched into fatalities linked to recent power cuts in Karachi. The regulatory body’s technical member is actively involved in the inquiry.

During the hearing, concerns were raised about project completion delays and high technical losses, contrasting with promises of improved efficiency and service quality. Stakeholders questioned the utility’s reliance on tariff hikes amidst economic challenges, advocating for penalties for unmet project deadlines and tighter regulatory oversight.

Despite the proposed tariff increase, K-Electric assured that consumers would not bear the burden due to national subsidies maintaining a uniform tariff of Rs35 per unit for other power companies.

The Karachi business community representatives criticized K-Electric’s tariff proposals, citing incomplete projects and discrepancies in operational losses. One consumer argued that despite prior approvals, the utility’s demand for increased costs was premature. He proposed strict timelines for project completions with penalties for delays, highlighting concerns over the company’s management of transmission losses, which rose to 1.3 percent compared to 0.83 percent in the previous seven-year period ending March 2023.

They also raised issues regarding Aggregate Technical & Commercial (AT&C) losses, which decreased from over 43 percent at privatization in 2005 to 18.1 percent in 2022 but remained high compared to state-run utilities. He questioned the utility’s financial strategies in light of recent credit downgrades, suggesting alternatives like increased loan borrowing or issuing Sukuk bonds.

Addressing K-Electric’s comparisons to the Lahore-Matiari project, he emphasized differences in project scope and questioned government support for the utility, urging it to bear full financial responsibilities and refrain from likening itself to Independent Power Producers (IPPs).

In response to K-Electric’s claims of minimal consumer impact from tariff increases, he cautioned that such adjustments could affect consumers indirectly through mechanisms like monthly fuel cost adjustments (FCA), quarterly adjustments (QTA) and transmission & distribution losses.

In its supply tariff petition, K-Electric has proposed a rate of Rs5.96 per unit, citing a projected historical compound annual growth rate (CAGR) of 2.4 percent.