NEPRA approves KE's multi-year tariff regime 

May 24, 2025 (MLN): The National Electric Power Regulatory Authority (NEPRA) has approved K-Electric’s Multi-Year Tariff (MYT) for Transmission and Distribution Regime for the period from FY 2023-24 to FY 2029-30.

This decision followed extensive evaluations, public hearings, and input from various stakeholders.

While the determination does not affect consumer-end tariffs, which remain under the Federal Government’s uniform tariff policy, it establishes the financial and operational framework under which K-Electric will function over the next seven years.

In its petition, K-Electric had requested a seven-year tariff horizon, arguing that a longer period was necessary to attract foreign investment and provide stability for infrastructure expansion.

NEPRA approved this request, aligning it with the company's investment plan and ensuring regulatory predictability. The authority also allowed a debt-to-equity ratio of 70:30, maintaining consistency with previous tariff determinations.

A return on equity (RoE) of 14% USD-based was approved, subject to quarterly exchange rate adjustments.

Additionally, the cost of debt was pegged to 3-month KIBOR plus a 2% spread for local loans and SOFR plus a 4.5% spread for foreign financing.

For operational and maintenance expenses, NEPRA approved Rs. 26,016 billion for FY 2023-24. The efficiency factor (X-Factor) was applied at 30% of the CPI increase starting in FY 2025-26, compelling K-Electric to optimise its cost structure.

While routine infrastructure maintenance was allowed separately, NEPRA rejected K-Electric’s proposal to adjust loss targets based on shifting consumer sales mix.

Instead, fixed annual loss reduction targets will apply throughout the tariff period. Depreciation will continue on a historical cost basis, ensuring the long-term sustainability of asset financing.

Working capital costs were assessed with consideration for actual secured debt mix, incorporating receipts from deposit works.

NEPRA also determined that amortisation of deferred revenue would be included in other income, offsetting depreciation costs.

The authority allowed corporate tax, the Workers Welfare Fund, and the Workers' Profit Participation Fund to be treated as pass-through costs.

Furthermore, wheeling charges were approved within the broader supply business tariff framework.

To ensure regulatory oversight, K-Electric must submit annual adjustment petitions by February each year to account for fluctuations in exchange rates, interest rates, CPI, and investment costs.

While NEPRA approved various components of K-Electric’s petition, several requests were denied.

The utility had sought a higher RoE of 16.67% USD-based, but NEPRA reduced this figure to 14%. A request to adjust distribution loss targets based on shifting consumer mix was rejected, as NEPRA opted to impose fixed annual reduction targets instead.

NEPRA also declined K-Electric’s proposal to include Interest During Construction (IDC) in the investment plan, arguing that it would constitute double counting.

The authority ruled against further indexation for O&M costs linked to growth in sent-outs, stating that such an adjustment was unnecessary beyond the X-Factor deduction.

K-Electric’s request to continue RoRB and depreciation post-MYT expiry in FY 2029-30 was denied.

NEPRA also refused to allow automatic inclusion of unrecovered costs from the MYT 2017-23. Instead, any approved costs will be addressed separately in future determinations.

Additionally, NEPRA ruled that separate premiums, including insurance and Sino Sure costs, must be managed within K-Electric’s allowed debt spread.

With this determination, regulatory clarity has been established, enabling K-Electric to proceed with investments aimed at improving service quality, enhancing grid reliability, and optimising operational efficiency across Karachi.

The approved framework will help attract foreign investment and ensure financial predictability.

However, efficiency targets and cost adjustments will push K-Electric to control expenses more effectively.

While consumer-end tariffs remain under government jurisdiction, NEPRA’s decision ensures that K-Electric operates under a structured, disciplined financial model that balances investor interests with cost reductions for consumers.

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