K-Electric’s planned investments of over $2 billion to get affected
ISLAMABAD-The proposed move to change the terms of distribution license of K-Electric to revoke the company’s exclusive rights to supply electricity in Karachi would adversely impact its planned investments of over $2 billion in its own generation, transmission and distribution infrastructure, as well in interconnection facilities to procure more power from the national grid.
The planned investments target end of blackouts in most parts of the city by 2023. K-Electric expects its new investments to make 93-94 per cent of the port city free from blackouts in the next three years if the relevant government authorities gave the required regulatory approvals without causing any delays, according to the company.
Under its existing license the company enjoys the exclusive rights for distribution of electricity in the city. However, the power-sector regulator, Nepra, had earlier this month suggested amendments to the terms of the utility’s license in order to cancel its right as an exclusive electric power supplier and to bring in competition.
“While competition can be a positive decision, it is important to understand that a sector as fragile as the power sector of Pakistan, must not endure major policy changes without deliberations from all angles. Observers say the solution to Karachi’s power woes lies in new investments in infrastructure and not in hampering the company’s plans in any way. When new entrants come into the market, it is important that the marginalized/vulnerable groups of the city are protected,” Amir Ghaziani, the K-Electric CFO, asserted while talking to The Nation.
Currently, KE’s planned investments involve substantial increase in its own generation by setting up a 900MW RLNG-based plant besides strengthening the power distribution infrastructure to further reduce system losses and check theft in different areas of Karachi. However, if the profits of the company shrink due to competition swooping up paying consumers such as industries, KE may not be able to invest in the development of dilapidated infrastructure.
The company has invested more than Rs330 billion in its generation and distribution capabilities since its privatization in 2005, which had helped it cut transmission and distribution (T&D) losses by more than 16 per cent to around 19 per cent. This is a significant improvement as, according to NEPRA State of Industry Reports, the public-sector Discos, have either seen an increase or stagnation of their system losses over the same period.
“Substantial investments have also been made to upgrade infrastructure in under-served and under-privileged areas of the city through project Sarbulandi during this period,” Ghaziani claimed. “We’ve invested everything we earned after privatization back into infrastructure development and around 75 per cent of Karachi is exempt from loadshedding owing to addition of 1057MW of own generation, 1000MVAs of transmission capacity to its system and nearly 900 feeders and 20,000 PMTs. Several external constraints like power theft and delayed payments from government entities notwithstanding, we have always prioritized the residents of Karachi.”
He was hopeful that the company will overcome the challenge of power shortages in the next two to three years with government support. “We’re confident that our planned investment will ensure elimination of the supply gap and consumers would see the benefits starting next summer. We are already working with government and NTDC to ensure investments are made by all parties, including KE and NTDC, to ensure evacuation of power from the national grid.”
Power-sector experts believe the competition in power distribution will decrease profitability of K-Electric and consequently its capacity to invest in distribution infrastructure because the new market players will be interested only in generation to target well-paying customers. It is also feared that the cost of power for the majority general consumers will go up as new entrants are unlikely to follow the existing tariff policy, which ensures that the low to middle income consumers are cross subsidized.
Answering a question, Ghaziani said, if properly implemented with required prerequisites in place, competition results in improvement in the quality of service.
“However, the current scenario is more confusing due to the lack of a proper policy. The new entrants will bring new generation into the market and whether they will be investing in transmission and distribution is still up in the air. The infrastructure and all network-related investment and performance obligation will probably remain with KE as it will be obliged to provide its network for the supply of power to all generators.
In response to another question, he said investments must be backed by consistent policy frameworks to mitigate risk. “Policy shifts ahead of committed periods violate investor rights, create regulatory uncertainty and damage Pakistan’s position as an investor-friendly destination. Any move to change the terms of K-Electric’s license and revoke its exclusivity will send the wrong message to potential investors, both local and foreign, looking to invest in any sector, particularly in the power sector.”