‘KE wants to compensate Rs7.5bln bad debts through tariff adjustment’

KARACHI: K-Electric has sought a regulatory approval to make up for its Rs7.5 billion of bad debts through revising up tariffs, although it may face taxation issue in any such possibility, people familiar with the matter said on Thursday.

A document showed that KE applied the National Electric Power Regulatory Authority (Nepra) for shifting the burden of bad debts/write-offs to its consumers through claiming tariff adjustment. Sources in the Federal Board of Revenue said bad debts are not allowed as expenses under tax laws and not admissible in tax assessment. Tax offices already disallowed write-offs of the power company of the past tax years, they said. Bad debts are impossible to recover. KE showed bad debts/write-offs of Rs7.49 billion, comprising receivable from 77,184 consumers, in its annual report for the period ended June 30, 2020.

“There are number of locations / premises which were removed as a result of anti-encroachment drives by the government authorities, whereas, in a number of other cases the premises to which electricity was supplied is no more traceable due to change in either the mapping of the area (including unleased area), demolition of the original premises, structural changes (including division of single premises into many) to the original premises and discontinuation / demolition of single bulk PMT [pad-mounted transformer] connection,” said KE.

KE said there are certain defaulter customers who were not able to pay off their outstanding dues in various forms including outstanding amounts on hook connection at the time of transfer of defaulter customers to metered connections and other settlements.

KE said tariff adjustment being part of revenue is assessed as an area involving presumed risk of material misstatement, hence, significant risk for the audit. “Further, such tariff adjustment on account of write-off of bad debts requires certain significant judgment and interpretation of multi-year tariff 2017-23 by the company’s management,” KE said in the report.

The power company ensures certain procedures to claim write-offs through tariff adjustment as required under a Nepra decision in July 2018, for the purpose of claim of tariff adjustment in respect of actual write-off of bad debts. The defaulter connection against which the bad debts have been written-off were disconnected prior to June 30 in the system both in the case of active and inactive customers. Furthermore, in the case of inactive customers, the customers were marked as inactive in the company’s system.

The amount of write-off of bad debts has been approved by the company’s board of directors certifying that the company has made all best possible efforts to recover the amount being written-off in accordance with the policy and procedures for write-off of bad debts.

The actual write-off of bad debts has been determined in accordance with the terms of write-off detailed in the policy and procedures for write-off of bad debts, as approved by the board of directors of the company.

Further, the statutory auditors of the company verified that the write-off of bad debts amount is not recoverable notwithstanding the efforts of the company. “In case any amount written-off, as included in the claim, is subsequently recovered from the customer, the recovered amount shall be adjusted in next year’s tariff, as required under the Nepra decision of July 5, 2018,” KE said.