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July 6, 2018

Nepra rejects K-Electric plea to raise tariff

Top Story

July 6, 2018

ISLAMABAD: The Abraaj Group has sustained another blow on Thursday as Nepra for the third time rejected review petition of K-Electric processed by Power Division seeking tariff of Rs16.11 per unit under the multi-year tariff (MYT) regime for 2016-2023 period.

The tariff has been fixed at Rs12.82 per unit with just increase of Re0.05 per unit from its earlier determined tariff of Rs12.77 per unit.

Nepra on Thursday uploaded its final determination on its website on multi-year tariff with no solace to Abraaj Group — management of K-Electric leaving it to the government to notify it within 15 days. Abraaj Group which was eyeing on the sale of K-Electric to Shanghai Electric Power Limited at $1.7 billion (Rs2,070 billion) will now have to sustain the loss of $800 million (Rs97 billion approx) on the newly determined tariff. This means Shanghai Electric Power which is still inclined to purchase the stakes of K-Electric will now get hold of it at $900 million (Rs1,100 billion) amount at this tariff.

The electric power regulator refused to budge before the tremendous pressure exerted upon the top men of the previous government and remained steadfast by sticking to its earlier determined tariff.

However, this time Nepra has increased Rs0.005 per unit by allowing US dollar indexation with 2.57 percent on transmission and distribution segment of K-Electric considering the expected decline in the value of Pak rupee against the dollar. The increase of paisa 5 per unit will have the impact of Rs700 million per year that is to be recovered from end consumers.

This time, K-Electric after exhausting all its rights of moving Nepra for its favorable tariff came through Power Division with the same petition previously submitted with regulator seeking performance based tariff, recovery of loss of Rs16 through in tariff, assessment of Regulatory Asset Base from equity side, and debt to equity with 70:30 ratio. Interestingly Power Division gave ownership to the K-Electric petition during the hearing held by Nepra knowing the fact the demands by K-Electric if accepted the government will have to give the huge subsidy. The regulator accommodated only one demand of K-Electric seeking US dollar indexation on transmission and distribution business resulting in increase of tariff by Re0.005 per unit from its earlier determined tariff of Rs12.77 per unit.

On March 20, 2017, Nepra determined the KE multiyear tariff at Rs12.77 for the period July 2016 to June 30, 2023. K-Electric’s management was not satisfied with the tariff and submitted the motion for leave for review, but the regulator maintained it earlier decision. After exhausting its all rights to submit new review petition on the subject, K-Electric came through Power Division on the scene seeking tariff at Rs16.11 per unit. The Power Division by giving its ownership to the petition submitted it with Nepra on October 12, 2017.

Under last multi-year tariff regime, KE was given the performance based tariff under which efficiency gains of 30 percent was extended to the privatised entity and 35 percent loss in the tariff. Now the efficiency has been increased to 37 percent and losses have been decreased to 20.7 percent.

Petitioner wanted to reintroduce the performance based tariff, but Nepra rejected arguing under last MTY regime, the company has made money with efficiency gains and reasonable loss in the tariff. Now it’s time to share the benefits with the consumers.

The privatised entity also wanted to pass the loss in recovery of Rs16 billion on to end consumers, but regulator also rejected this plea asking the entity to get declared this amount the bad debt through its board of directors and get it written off.

KE also wanted assessment of Regulatory Asset Base from equity side as it also injected Rs65 billion in the company and wanted to treat that amount as equity, but the regulator rejected this plea saying the RAM will be calculated from asset side as it will benefit the consumers. On the issue of debt to equity ratio, KE wanted actual debt equity ratio assumed in 70:30 percent in the current multi-year tariff, but regulator rejected as was rejected in earlier determinations.

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