I-MYT determination impairs viability of KE’s business plan; will have far reaching implications on power situation of Karachi with no impact on Consumer End Tariff

The integrated multi-year tariff determination in response to K-Electric's review motion filed in April 2017 was announced last evening. 

It must be noted that the determination has no impact on consumer end tariff in line with the uniform tariff policy implemented across Pakistan. 

The revised tariff determination of Rs. 12.77 per kWh is 20% lower than requested tariff which is financially unviable.

The revised determination issued by NEPRA will have far reaching implications on the people and power situation of Karachi as it impairs the viability of KE’s business and limits its ability to execute investment plans. Whilst KE is currently evaluating the determination and will pursue a course of action accordingly, preliminary observations are:

KE, being a vertically integrated utility, requires to continuously invest to meet the growing demand for electricity and ensure optimum service levels. A tariff structure which allows flexibility to invest in the future projects has not been incorporated. This will adversely affect the power situation of the city and result in increased load shed. The Determined Tariff has not taken into consideration the previous performance based structure. The revised tariff determined by NEPRA does not cover the full costs which will lead KE into serious cash flow shortfalls, putting the sustainability of the company at risk. Reduced cash flows will also hamper the power utility’s plan to pursue its generation projects through IPPs. Moreover, this will also limit KE's efforts to reduce line losses or upgrade its transmission and distribution capacity.

Under the previous MYT model, KE invested around US$ 1.4 billion in the power infrastructure of Karachi. As a result, K-Electric has substantially improved services for Karachi’s consumers and businesses. The company added 1,057 MW of generation, reduced transformer trips by 58% and reduced line losses from 36% to 22%. These improvements have enabled the company to make 61% of Karachi load-shed free (from 23% in2009), including all industrial customers, and reduce the duration and frequency of outages by 45% and 41% respectively (from2011). K-Electric additionally created 29 Integrated Business Centers (“IBCs”) to improve and enhance customer engagement.