ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Tuesday allowed 70 paisa per unit increase in the proposed seven-year tariff it had determined for K-Electric in March this year, apparently to facilitate the sale of majority stakes from Abraaj Capital to Shanghai Electric of China.

In its determination released on Tuesday, the regulator determined average tariff for KE at Rs12.77 per unit, up from Rs12.07 it allowed in March this year. Once notified by the government, the tariff will remain valid until 2023.

In other words, the regulator cut the average tariff for KE by Rs3.50 per unit for the next seven years. The cut has now been contained to Rs2.80 per unit. The existing base tariff would remain unchanged at the existing level under the government’s uniform countrywide tariff, involving subsidies and cross-subsidies.

The regulator said it allowed 36 paisa to KE for its plans to set up a new 900MW Bin Qasim Power Station by taking total seven year investment at Rs300 billion instead of Rs237bn previously allowed. Another 8 paisa was allowed on account of transmission and distribution (T&D) losses and about 25 paisa per unit as incentive to reduce loadshedding.

Management sought a hike of Rs3.50 to fund future investment plan

An official said the existing tariff envisaged an incentive for the utility to apply loadshedding in lower revenue areas, reduce power outages and earn windfalls. It has been given targets to expand zero loadshedding areas in Karachi to 80 per cent by 2020 from 65pc at present.

The regulator noted that a major Rs117bn transmission enhancement project (TP-1) earlier scheduled for completion in 2019 had not yet been launched and was unlikely to be started in the near future.

KE sought an increase in tariff to Rs15.57 per unit for sustainability of its operations. However, Nepra turned down this request and granted a tariff of Rs12.07 per unit in its decision in March 2017. KE then filed a review motion seeking further increase in the tariff. The latest decision comes at the conclusion of that review.

In its decision, Nepra said that KE must arrange heat rate tests by an independent engineer within a period of six months from the date of notification of the 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.

KE has not been allowed any provision on account of the doubtful debts in the tariff, however, bad debts written off at the rate of 1.69pc of KE’s assessed sales revenue has been allowed in the base case. For the purpose of actual write offs in future, KE shall complete the set procedures by the regulator.

The tariff will be eligible for a midterm review after four years, subject to realization of the allowed investments, and in case of under investment and performance by KE, the base rate adjustment component will be adjusted accordingly.

The authority has also allowed T&D losses in tariff control period. In first year, KE has been allowed 20.90pc loss, 19.80pc in second year, 18.75pc third year, 17.76pc fourth year, 16.80pc fifth year, 15.95pc sixth year and 15.36pc in seventh year.

KE’s previous tariff, announced originally in 2002, became effective in 2009 due to delayed sale of Karachi’s integrated utility and then its resale to Abraaj Group. It expired on June 30, 2016. The new tariff now becomes effective from the date of its notification by the federal government, legally required within 15 days unless challenged for review or reconsideration.

Published in Dawn, October 11th, 2017