ISLAMABAD: In a controversial decision drawing sharp criticism from the government and business community, the National Electric Power Regulatory Authority (Nepra) has approved a 14 percent dollar-based return on equity (RoE) for K-Electric’s distribution business—translating to a hefty 29.68 percent return in rupee terms for FY2023-24.
Likewise, the Authority also allowed KE a USD based RoE of 12 per cent for its transmission segment, which works out as 24.46 percent in PKR terms, for the FY2023-24.
The Ministry of Energy (Power Division) strongly opposed the foreign currency-linked return, arguing it was “unjustified” and misaligned with returns offered to state-run utilities. “The RoE for the transmission and distributions businesses should be aligned with returns allowed to NTDC and the public sector distribution companies (DISCOs),” the ministry said in written comments to Nepra. Despite these objections, Nepra granted K-Electric an average distribution tariff of Rs3.31 per unit, lower than the company’s requested Rs3.84, and a transmission system use-of-charge (UOSC) of Rs1,348.66/kW/month for FY2023-24 under its seven-year Multi-Year Tariff (MYT) plan for 2024–30.
In addition to the dollar-based 14 percent RoE for distribution, Nepra also approved a 12 percent USD-linked return for KE’s transmission operations. Critics, including Amreli Steels and other industrial stakeholders, warned that such high foreign currency-indexed returns would impose excessive burdens on already struggling consumers.
Nepra defended its decision by citing K-Electric’s private ownership, substantial investment needs, and lack of sovereign guarantees. However, it hinted at a future review: “The authority may revise the USD-based RoE downward or convert it to PKR once other Discos are privatised,” Nepra noted in its decision.
Meanwhile, K-Electric in a statement regarding the decisions said, “While the determinations are comprehensive and currently under review at KE, an initial assessment highlights that Nepra has allowed lower Return on Equity (RoE) than what K-Electric had requested based on the already allowed level. For the distribution network, KE had requested returns allowed to KE under the last MYT, but was granted only 14 percent, while in the transmission segment, KE’s RoE was reduced to 12 percent.”
It further said that another notable aspect of the decision is the treatment of loss allowances. As the starting point, Nepra has approved significantly lower loss percentage for distribution compared to the actual loss incurred by K-Electric. This departs from established industry best practices, where the actual loss of the preceding financial year is typically accepted as the starting benchmark, with targets then reduced over time in line with allowed investments.
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