Courtesy Business Recorder - by MUSHTAQ GHUMMAN
ISLAMABAD: National Electric Power Regulatory Authority (Nepra) has raised the base tariff of K-Electric by 0.70 per unit under Multi-Year Tariff plan.
At present, the end-consumer tariff of K-Electric is Rs 12.07 per unit which had been raised to Rs 12.77 per unit effective from July 2016 to 2023.
Earlier, K-Electric had sought increase in tariff to Rs 15.57 per unit for sustainability of the operation of the entity. However, Nepra had turned down this request and raised it to Rs 12.07 per unit in its decision in March 2017. Then, K-Electric had field a review motion to increase tariff and after conducting the hearing, the power regulator had raised tariff to Rs 12.7706 per unit.
Under the uniform tariff policy, the end-consumer will be maintained at Rs 12.77 per unit for consumers of Karachi. K-Electric will have to absorb increase which would hit on its profitability or government would have to give subsidy to adjust increase.
The period for the Multi-Year Tariff shall be of seven years applicable from July 1, 2016 till June 30, 2023.
In its decision, the power regulator said that K-Electric shall arrange heat rate tests by an independent engineer within a period of six months from the date of notification of the instant tariff determination. The selection process and appointment of an independent engineer shall be approved by Nepra, whereas, the tests shall be conducted in the presence of NEPRA professionals as observers. The adjustment in heat rates will be made based on the results of the performance (heat rate) test.
K-Electric has not been allowed any provision on account of the doubtful debts in the tariff, however, bad debts written off @ 1.69 percent of K-Electric’s assessed sales revenue has been allowed in the base case. For the purpose of actual write offs in future, K-Electric shall complete the set procedures by the regulator.
The connection has to be permanently disconnected for more than 3 years and due process of law to recover the outstanding dues as arrears of Land Revenue has been followed. In case where ownership of a premises is disputed, K-Electric shall certify that it has made best efforts to recover the outstanding amount but the amount is not recoverable, than it will be considered for write offs.
The amount to be written off shall be duly approved by the Board of Directors (BOD) of K-Electric. The write offs will be considered by the Authority by ensuring the amount recommended for write offs has not been taken by K-Electric in any other way. K-Electric has not been allowed the impact of Revaluation on its Regulatory Assets Base while working out the Depreciation charges and Return on Rate Base.
Other income, excluding the impact of late payment charges (LPC), interest on bank deposits and meter rent, has been deducted from the base case assessment. K-Electric shall pay interest earned on security deposits to the consumers through electricity bills.
K-Electric is directed to stop charging of meter rent in future from those consumers who pay their cost of meter. K-Electric has been allowed a total investment of Rs298,915 million for the seven years tariff control period for its generation, transmission and distribution systems.
A midterm review to the extent of allowed investments only shall be carried out, after completion of four years of the tariff control period, and in case of under investment and performance by K-Electric, the base rate adjustment component may be adjusted, keeping in view the amount of Investment allowed vis-à-vis actual investment made by K-Electric during the period, after thorough analysis and review by the Authority.
The authority has also allowed transmission and distribution losses in tariff control period. In the first year, K-Electric has been allowed 20.90 per cent, 19.80 per cent in second year, 18.75 per cent third year, 17.76 per cent fourth year, 16.80 per cent fifth year, 15.95 per cent sixth year and 15.36 per cent in seventh year.
While commenting on Nepra tariff determination, a spokesperson of K-Electric said that the integrated multi-year tariff determination in response to K-Electric’s review motion filed in April 2017 has been announced.
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 Rs12.77 per kWh is 20 percent 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:
K-Electric, 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 shedding.
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 percent and reduced line losses from 36 percent to 22 percent. These improvements have enabled the company to make 61 percent of Karachi load-shedding free (from 23 percent in 2009), including all industrial customers, and reduce the duration and frequency of outages by 45 percent and 41 percent respectively (from 2011).
K-Electric additionally created 29 integrated business centers (IBCs) to improve and enhance customers service, the spokesman said.