Power Division seeks Nepra’s review of K-Electric tariff

ISLAMABAD: The Power Division has formally requested the National Electric Power Regulatory Authority (Nepra) to revisit its recently-approved seven-year tariff for K-Electric, warning that the plan could saddle consumers and public finances with a staggering Rs300 billion in extra costs in seven years through FY2030.

Minister for Power Awais Leghari said that the power sector cannot afford tariff structures that reward inefficiency, whether from public or private entities. He emphasised that the review aims to promote a sustainable and healthy power distribution system.

The PD’s review petition raises alarm over several tariff components that it says disproportionately benefit K-Electric at the cost of consumers and taxpayers. Key among them is the fuel cost benchmark set at Rs15.99 per unit — well above the level paid by state-run distribution companies — shifting nearly Rs28 billion in FY2024 and Rs13 billion in FY2025 on federal budget rather than KE customers.

It also criticises Nepra’s approval of “recovery losses” inclusion in KE’s tariff, despite the company reportedly recovering more than the permitted threshold. This alone would net KE an additional Rs36 billion in FY2024 and Rs35 billion in FY2025, creating a cumulative windfall of over Rs200 billion over the control period.

The division further objects to the 13.90 percent allowed distribution loss target — higher than KE’s own projection of 13.46percent — which could add Rs21 billion to consumer bills over seven years. A special two percent margin for security costs, granted despite improved law and order in Karachi, would inflate KE’s revenues by another Rs99 billion.

A higher 1.30 percent transmission loss ceiling —almost double KE’s historical average of 0.75pc —enables the utility to retain 75pc of any efficiency gains while sharing only 25pc with consumers. The ministry says this asymmetric incentive could cost Rs4 billion in FY2024 and Rs28 billion across the period.

Nepra also allowed a 14 percent return on equity (RoE) in US dollar for KE’s distribution business — equal to nearly 29.68 percent in rupees — far exceeding the 14.47 percent RoE allowed for peers like Fesco. This will yield KE an additional Rs3.7 billion in FY2024 and Rs35.6 billion through FY2030.

Further, capacity payments for idle KE plants like BQPS-I, KCCP, KGTPS, and SGTPS will cost Rs12.7 billion in FY2025 and Rs82.5 billion over seven years. Additionally, KE’s plants benefit from favorable indexation and a 17 percent return on equity under a hybrid “take-or-pay” model, with inflation adjustments linked to US CPI and USD/PKR. These terms, more generous than those given to independent power producers, are projected to cost Rs7 billion in FY2024 and nearly Rs57.3 billion over the period.