The first day of a two-day hearing on K-Electric’s review petition in response to the Tariff announced by NEPRA for the period July 1, 2016 to June 30, 2023 was held today at a local hotel in Karachi with active participation from prominent businessmen, renowned professionals, civil society and philanthropists.
Speaking on the occasion Omar Lodhi, Partner & Head of Asia, The Abraaj Group said, “The performance based tariff structure enabled K-Electric to invest over PKR 130 billion in the power infrastructure of Karachi since 2009. KE has to-date not paid out any dividend and the profits declared in annual audited accounts have been re-invested into the business. This in turn has benefited customers through improvement in supply and quality of service. The long-term business certainty and continuity of a performance based Multi-Year Tariff structure is critical for K-Electric to further invest in improving Karachi’s power infrastructure in order to support the growing energy demands of the city. However, the determined tariff 2017 does not cover the costs and ignores genuine recovery issues, leading KE into serious cash flow shortfalls, putting the sustainability of the company at risk and would result in serious implications for KE and its consumers.”
Presenting KE’s review petition, Aamir Ghaziani, Director Finance & Regulations at KE, stressed upon the importance of recognizing recovery loss in tariff to ensure that the tariff remains cost reflective in line with practice adopted by regulators around the world for private utilities. “KE being a vertically integrated utility, a fixed rate base tariff structure is not suitable and instead a flexible performance based tariff is most suited as it encourages the utility to invest in efficiency improvements and also ensures that consumers are not required to pay for investments in advance. Moreover, in determined tariff 2017, returns allowed to KE are lower than offered to other private sector investors who also possess government guarantees and NEPRA should ensure that a level playing field is provided to KE,” he said.
Tayyab Tareen, CEO, K-Electric said, “Based on an investment of over PKR 254 billion, KE has developed a robust seven-year business plan in view of the growing power demands and to strengthen the city’s power infrastructure. Moreover, addition of around 2,000 MW has been planned through IPPs, which would lead to a surplus supply scenario with adequate contingency. However, KE would be unable to execute these investments as under the determined tariff, KE’s cashflows are projected to be negative.”
KE has been operating on an Integrated Multi-Year Tariff (IMYT) and through its previous I-MYT, K-Electric ensured an investment well above the proposed business plan at that time. As a result of these investments, K-Electric has substantially improved services for Karachi’s consumers and businesses. Amongst other initiatives, 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% in 2009), including all industrial customers, and reduce the duration and frequency of outages by 45% and 41% respectively (from 2011).
Moreover, the utility reaches around 3.9 million lives annually with initiatives like provision of free or subsidized electricity to key major healthcare and welfare organizations besides creating various powerful platforms to engage the youth in healthy activities be it sporting events, providing them professional exposure and encouraging students’ initiatives. KE’s flagship community development project ‘Ujala’ is also progressing swiftly and aims to empower 1 million lives in 200 communities by the end of 2017.
