The Power Division has clarified that the recent determination by the National Electric Power Regulatory Authority (NEPRA) regarding K-Electric’s multi-year tariff is a landmark move aimed at safeguarding consumer interests, promoting transparency, and curbing inefficiencies – contrary to misleading claims suggesting otherwise.
A spokesperson of the Power Division, in a detailed statement on Monday, said that certain elements were distorting NEPRA’s decision to create the false impression that it was against the people of Karachi. “The truth is exactly the opposite,” the spokesperson emphasized, adding that the review strengthens consumer protection and ensures fair treatment for all electricity users across Pakistan.
It is important to lay out some key facts in simple terms before the people of Karachi and the entire country, so that this malicious campaign can be countered with clarity, he added.
K-Electric is a private-sector entity and is therefore expected to demonstrate performance superior to that of public-sector distribution companies. However, when K-Electric’s performance is compared to public utilities such as Islamabad Electric Supply Company (IESCO), Faisalabad Electric Supply Company (FESCO), or Gujranwala Electric Power Company (GEPCO), these public-sector companies are ahead in critical areas including recovery of dues, reduction of line losses, and quality of service to consumers.
The spokesperson clarified that NEPRA’s review in this matter primarily relates to K-Electric’s administrative and operational affairs. K-Electric is currently drawing approximately 2,000 MW of electricity from the national grid, and may draw even more in the future. This power sourced from the national grid is cheaper than the electricity generated by K-Electric’s own plants.
The spokesperson further stated that consumers of K-Electric are already being charged the same per-unit tariff that applies to consumers in other parts of the country. Now, if K-Electric’s own internal costs are rationalized and reduced, will that become a reason to increase the per-unit tariff for consumers – or will it help maintain uniform national rates for Karachi consumers as well? Is that not a positive outcome for the people of Karachi?
According to the Power Division, K-Electric consumers – like all other electricity consumers in Pakistan – will continue to benefit from subsidies, because uniform national tariffs remain in place. However, this subsidy will no longer be allowed to turn into profit for K-Electric merely due to inefficiency or failure to reduce its losses. Preventing public-sector subsidy from being converted into private gain is a national responsibility.
Before this review, K-Electric had the ability to pass on non-recovered dues to the public, effectively converting its inefficiencies into an additional burden on taxpayers. Under the new framework, this will no longer be permissible. Only those receivables which K-Electric can prove – with evidence – to be genuinely unrecoverable despite all reasonable efforts will be considered by NEPRA. K-Electric will no longer be able to unilaterally include arbitrary amounts in the per-unit cost of electricity for Karachi consumers without proof. Is this not a protective measure in favour of consumers?
The spokesperson added that this NEPRA review is also critically important in terms of keeping K-Electric’s profit within a reasonable and justified limit. Prior to this review, K-Electric’s allowed return on its invested capital ranged between 24% and 30%, and this return was linked to the US dollar. Under the revised framework, the dollar indexation has been terminated, as K-Electric’s assets exist in Pakistan, are denominated in Pakistani rupees, and are associated with the domestic capital market. In addition, it has now been made possible to further reduce the rate of return on K-Electric’s own plants in the same manner as in case of re-negotiation of power purchase agreements with other independent power producers (IPPs) in the country.
The spokesperson noted that an independent consultant appointed by K-Electric’s own Board conducted a study and allowed up to 6.5% in losses to be built into consumer bills. The same consultant also disclosed that K-Electric’s management failed to sufficiently reduce losses despite incurring heavy expenditure. These are findings revealed by K-Electric’s own appointed independent consultant. In light of these disclosures, NEPRA has moved to reduce the recognized loss levels. Has NEPRA not acted in the public interest by doing so? The public can judge for itself.
The spokesperson further stated that K-Electric has increased its draw of electricity from the national grid, which should lead to a reduction in its monthly fuel costs. At the same time, NEPRA has also decided to exclude those K-Electric generation plants that are currently non-operational, so that capacity-related charges from idle plants are not unfairly passed on to consumers through the per-unit tariff. It should be recalled that the federal government has already begun a similar exercise with its own generation plants, which has helped lower the per-unit cost to consumers and eliminate unnecessary expenditure. If NEPRA now directs that idle plants be removed from the system and their costs not be recovered from the public, is that not in the direct interest of the citizens of Karachi?
The spokesperson emphasized that this NEPRA review is not only a landmark for the country’s regulatory framework, but will also have long-term positive effects. Going forward, no entity will be able to extract unverified or unjustified profits from the public, and regulators will continue to uphold the law and protect the interests of citizens.
As a result of NEPRA’s decision, the additional burden on taxpayers will be reduced, and K-Electric will be incentivized to cut losses instead of passing them on. Previously, due to inefficiencies, K-Electric was effectively compensated with billions of rupees in subsidies, financed through the national budget. This revised determination will help reduce that unnecessary annual fiscal burden.
Finally, this decision also removes the unfair disparity that existed between K-Electric and public-sector distribution companies (DISCOs). K-Electric must now undertake administrative reforms and demonstrate operational improvement to control its inefficiencies. There is no risk of load-shedding in Karachi arising from the retirement of loss-making or idle generation plants, because cheaper and sufficient electricity is already available in the national grid, and the infrastructure to deliver this power to Karachi consumers is in place.