• Nepra admits petition for hearing, asks stakeholders for their views within seven days

ISLAMABAD: Based on the Rs392 billion investment plan it approved a few days back, the National Electric Power Regulatory Authority (Nepra) is now working on increasing the base electricity tariff for K-Electric by up to Rs3.84 per unit, indexed with exchange rate and inflation, for the next seven years (July 1, 2023 to June 30, 2030).

In an announcement on Friday, the regulator asked all stakeholders in KE’s business, including affected parties and the general public, to give their views and comments within seven days on the

tariff petition involving an increase of 3.8357 per unit in the total base tariff, which currently stands at around Rs32 per unit.

At present, a uniform tariff rate is applicable across the country under the government policy, for which about Rs315bn annual subsidy has been budgeted for payment to KE. As such, the new rates for KE would also become part of the national average base tariff, and the difference between KE’s base tariff and other Discos would be paid out of taxpayers’ money.

Nepra said it has admitted the Multi-Year Tariff (MYT) petition filed by KE for distribution tariff for the period from July 1, 2023 to June 2030. It said the major cost of Rs1.93 per unit indexed annually with the local consumer price index had been claimed on account of operation & maintenance (O&M) expense while about Re1 per unit is to cover the cost of debt.

Another 55 paise per unit increase has been sought for return on equity, 47 paise for depreciation cost, and some others for Kibor-linked working capital costs. The KE claims that the tariff structure was aligned with the existing tariff structure, covering return on asset base, equity, depreciation, etc., as allowed under the previous MYT ending June 30, 2023.

However, instead of base rate adjustment, year-on-year investment allowance has been demanded along with O&M costs on a per unit basis. The tariff has been demanded under the mechanism for recovering working capital costs and an investment plan worth Rs185bn for the distribution business. Another Rs18.5bn has been demanded in tariff for support functions based on reference macro-economic factors with indexation and revision mechanism on both an annual (Annual Investment Update) and biennial (Complete Investment Review) basis.

Also, the base tariff must be linked to an indexation mechanism to account for quarterly variations in local and US inflation, Karachi and London Inter-bank rates (Kibor and Libor), and the exchange rate. Moreover, annual adjustments would relate to working capital balances, distribution losses, and revisions in units served. The supply tariff would include pass-through of costs of generation, transmission, distribution and external power purchase, retail margins, etc.

Nepra approved on April 24 a Rs392bn investment plan for K-Electric’s transmission and distribution network, which will reduce system losses and meet demand growth over seven years.

Under the decision, the KE has been allowed to invest over Rs238bn in the transmission network, Rs137bn in the distribution network, and another Rs17bn in related support systems like defence, cyber security, information technology, resource planning, etc., over the next seven years.

The approval came almost one and a half years after the privatised entity sought Rs484bn worth of a seven-year investment plan, on which the regulator conducted a public hearing on March 1, 2023. “Since there is a uniform tariff in the country, thus the subsidy will be impacted. However, this issue will be discussed and finalised during the proceedings of supply tariff,” the regulator said.

The investment plan involves 14 growth projects to meet the future load growth of the customers at a total cost of Rs120 in the MYT control period from FY24 to FY30. Out of this total amount, Rs80bn has been allowed by the regulator against KE’s claim for Rs85bn for the growth projects related to Grid Stations. Another Rs41bn has been allowed for transmission lines for growth against a claim of Rs55.bn.

This would involve adding 450km of transmission lines, 13 new grid stations, and enhancing the transformation capacity to 755MVA (megavolte amperes) at the 132kV voltage level and 3,800MVA at 220kV and above.

Published in Dawn, May 4th, 2024