KARACHI - The long-term business certainty and continuity of a performance-based multi-year tariff structure is critical for K-Electric to further invest in improving Karachi’s power infrastructure in order to meet the growing energy demands of the city.

This was stated by Omar Lodhi, Partner and Head of Asia, Abraaj Group on the first day of a two-day hearing of K-Electric’s review petition against the tariff announced by Nepra for the period commencing from July 1, 2016 to June 30, 2023 held here on Thursday at a local hotel. Prominent businessmen, members of civil society and philanthropists turned up in large numbers.

Speaking on the occasion, Lodhi said that the performance-based tariff structure had enabled K-Electric to invest over Rs130 billion in the power infrastructure of Karachi since 2009. “KE has to date not paid any dividend and the profits declared in annual audited accounts have been re-invested in the business. This in turn has benefited consumers through improvement in supply and quality of service,” he said, and added, “However, the tariff determined by Nepra does not cover the costs and ignores genuine recovery issues, which may lead to serious cash flow shortfalls for the KE, and put sustainability of the company at risk and result in serious implications for the power utility and its consumers.”

Presenting KE’s review petition, Aamir Ghaziani, Director Finance & Regulations at KE, stressed the importance of recognising recovery loss in tariff to ensure that the tariff remained cost reflective in line with the practice adopted by regulators around the world for private utilities. “KE, being a vertically integrated utility, a fixed rate base tariff structure is not suitable and instead a flexible performance based tariff is most suited as it encourages the utility to invest in efficiency improvements and also ensures that consumers are not required to pay for investments in advance. Moreover, in tariff determined for 2017, returns allowed to KE are lower than offered to other private sector investors who also possess government guarantees and NEPRA should ensure that a level playing field is provided to KE,” he said.

Tayyab Tareen, K-Electric CEO, said, “Based on an investment of over Rs254 billion, KE has made a robust seven-year business plan in view of growing power demands and to strengthen the city’s power infrastructure. Moreover, addition of around 2,000 MW has been planned through IPPs, which would lead to a surplus supply scenario with adequate contingency. However, KE would be unable to execute these investments as under the determined tariff, KE’s cash flows are projected to be negative.”

KE has been operating on an Integrated Multi-Year Tariff (IMYT) and through its previous I-MYT, the power utility has ensured an investment well above the proposed business plan at that time. As a result of these investments, K-Electric has substantially improved services for Karachi’s consumers and businesses.

Amongst other initiatives, 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 loadshedding free (from 23% in 2009), including all industrial consumers, and reduce the duration and frequency of outages by 45 percent and 41 percent respectively (from 2011).

Moreover, the utility reaches around 3.9 million lives annually with initiatives like provision of free or subsidised electricity to major healthcare and welfare organisations besides creating various powerful platforms to engage youth in healthy activities.