Unviable tariff to affect K-E’s ability to raise financing for projects
ISLAMABAD – Two banks Tuesday informed the National Electric Power Regulatory Authority (Nepra) that the determined tariff for K-Electric will adversely affect the company’s ability to fund ongoing and future projects.
In NEPRA’s public hearing, which was chaired by Chairman Tariq Sadozai, representatives from UBL and HBL, in detailed briefing, said that the determined tariff will adversely affect K-E’s ability to raise financing for ongoing and future projects. The hearing was conducted as the Power Division had written a letter to Nepra to reconsider the tariff for smooth operations of the company.
In the public hearing, the banks representatives also recommended the regulator to provide a longer tariff period to K-E which will give more comfort to lenders and as such may allow the company to raise its requisite financing for long-term replacement and expansion plans and projects.
Participants from various sectors shared their concerns on the revised Multi Years Tariff (MYT) determination announced by NEPRA in October 2017 wherein K-E base tariff was reduced by 20% to Rs12.77 per kWh in response to K-E’s review motion filed in April 2017.
In his presentation, Power Division joint secretary, Zargham Ishaq said that government wanted the K-E to provide power supply to the consumers of Karachi and therefore, it had requested the power regulator to reconsider the tariff. NEPRA asked whether government would provide subsidy to the consumers in case of tariff differential. Zargham said that government would do it as it wanted to provide the undisrupted electricity supply to the consumers of the Karachi.
Vice President FPCCI, Mirza Ishtiaq Baig said that Karachi is hub to some of the largest industries in Pakistan which make a significant contribution to the country’s GDP. “In case K-E does not meet the required investments for infrastructural upgrades due to unviable tariff, it may not only adversely affect the people of Karachi in terms of extended loadshedding but will also hurt industrial growth and operations,” he added.
Representative from Pakistan Business Council (PBC) also shared inputs during the session and said, “Regulatory policies should not jeopardize investment which is required to ensure reliable supply of power to the most important commercial city of the country.” They said that fixed rate based tariff structure assuming a fixed investment plan is not viable for a vertically integrated utility such as K-E where additional investments may be required. The improvement in infrastructure that has occurred in Karachi since K-E’s privatization has only been possible through an aggressive influx of capital across the entire value chain. It is therefore imperative to revisit the policies which underpin KE’s operations and modify them in a manner to allow adequate returns.”
Officials of the K-Electric also reiterated that the structural changes and the reduction in its base tariff significantly impairs the power utility’s ability to undertake investments needed for the provision of reliable and uninterrupted power supply to the territory it serves.
Commenting on the occasion, K-E management highlighted the power utility’s commitment towards meeting the growing power demand and providing reliable and uninterrupted supply to its consumers for which a sustainable tariff would be essential. The revised MYT is insufficient to cover the costs of business and ignores genuine recovery issues which is expected to lead K-E into serious cash flow shortfalls, putting the sustainability of the company at risk and result in serious implications for K-E and its consumers.
Other intervener from various sectors highlighted that the revised MYT will turn KE into a loss-making entity with cash deficit of more than Rs 400 billion over 7 years – making the power utility’s operations unviable, un-bankable, unsustainable, and impairing KE’s ability to undertake much-needed investments in generation, transmission and distribution which would result in significant increase in loadshedding and technical power outages.