KE’s planned initiatives till the year 2023 will result in an investment of around USD 1.7 billion across the power value chain. This would enable KE to unlock key value drivers, along with benefitting consumers and the economy at large.

Generation (around USD 800 Million)

Capacity addition of around 2,700 MW, which will improve KE’s fleet efficiency and will diversify the fuel mix. These include:

1. State of the art 900 MW RLNG Power Plant – This power plant will significantly improve KE’s overall fleet efficiency and enable KE to phase out the old units of BQPS I power plant that primarily run on furnace oil, which is an expensive fuel. It is important to note that commissioning of power as per the planned timelines is dependent upon timely availability of RLNG supply for which immediate support is required from GoP on spur pipeline and Gas Supply Agreement (GSA) with PLTL.
2. Additional power from National Grid – KE is geared to make investments in grids and interconnection works to ensure the evacuation of additional 1,400 MW from the National Grid by 2022 (Dhabeji) and 2023 (KKI Grid).
   Further, as an interim measure, the existing supply from national grid is to be increased to 1100 MW, subject to the completion of required rehabilitation and upgradation works to be carried out by NTDC along with implementation of ‘Cross Trip’ scheme and technical study, for which KE remains in continuous engagement with relevant stakeholders including GoP, NTDC, CPPA-G and NEPRA.
3. 350MW of renewable projects – The additional renewable projects will enable KE to diversify its fuel mix.

Transmission (around USD 500 Million)

Capacity enhancement and improved network reliability through:

• TP – 1000: addition of 1,000 MVAs
  • 90% project completed – to date, 6 grid stations and 26 power trafos have been energized under TP–1000 project
• Other planned initiatives to further improve system / network reliability and facilitate sent-out growth, including setting up of 500 kV grid stations to off-take additional power from the National Grid, subject to approvals.
• In addition to the above, 5 grids, over 300 MVAs and around 100km of transmission lines are planned to be added

Distribution (around USD 400 Million)

• Capacity enhancement through addition of over 200 feeders
• Aggressive roll out of ABC conversion which will significantly reduce losses – planned conversion of all high loss PMTs by 2023
• Targeted recovery drives / campaigns to engage defaulting consumers and improve recovery levels
• Simplified New Connection process – expected to add around 1,000 MW of new connections
• Safety enhancement initiatives

The above demand-supply outlook and planned projects are dependent upon timely government and regulatory approvals including investment plan revisions submitted with NEPRA, Gas Supply Agreement with PLTL for the provision of 150 MMCFD of RLNG and timely execution of rehabilitation and grid works to be undertaken by NTDC to enable off-take of additional power next summer and in the long term.

Demand Supply Situation:

K-Electric has a well thought out and considerate strategy for the citizens of Karachi. K-Electric’s Segmented Load shed (SLS) policy divides feeders based on their loss profile which is determined by the T&D losses and recovery ratios in any particular area. High Loss areas in Karachi face up to 7.5 hours of load shedding (when energy demand is at its peak) whereas low loss areas face no load shedding whatsoever.

The success of the scheme is clear from the fact that there has been a shift of several areas from high loss to low loss. It is also relevant to point out that at the time when K-Electric’s SLS scheme was launched in 2009-10, there was unscheduled load shed across the board but due to consistent approach and application of the scheme across the city without any discrimination, over 75% of the feeders are exempted from load shed, which was only 23% in the year 2009. Moreover, there is a growing acceptance that stealing of electricity and illegal abstraction of electricity is a menace which affects all consumers of Karachi equally.

The SLS scheme has been so successful in Karachi, in terms of improving financial viability and consumer behavior that Ex-WAPDA DISCOs have also adopted this model, and the Ministry of Energy has formally approved it as part of the National Power Policy. 2013. Find the National Power Policy 2013 here.

KE conducts a quarterly review process wherein it evaluates the loss of each area and profiles it as high, medium, or low loss, respectively.

K-Electric’s segmented load-shed policy was also acknowledged and lauded at several forums like State Bank of Pakistan and International Monetary Fund (IMF).

Fuel prices are variable, often changing very quickly due to international supply-demand factors and in response to global economic changes. In KE’s tariff, the fuel cost variations are to be passed on to the consumers, as practiced in the rest of the country. The Fuel Charge Adjustment (FCA) is an approved adjustment allowed to electricity utilities by NEPRA on account of monthly variation in fuel prices, generation mix and volume and is passed through to customers in their monthly bills. Accordingly, there are positive as well as negative adjustments for FCA.

FCA is determined by NEPRA for all DISCOs in Pakistan including K-Electric. The utility files its claims every month, after which a public hearing is conducted. The NEPRA team then verifies the claim and notifies the adjustment via an SRO.

Fuel Cost Adjustments for the period July 2016 till June 2019 were not applied to KE customers’ electricity bills due to unforeseen delays in the finalization of KE’s Multi Year Tariff. Fuel Cost Adjustment (FCA) was notified by NEPRA via SRO 1621 (I)/2019 on December 27, 2019 and was applicable to consumer electricity bills from January 2020 onwards in accordance with the NEPRA determined mechanism.

While the FCA was not being applied to KE consumers, it was however being adjusted in the electricity bills of all other customers across the country.

Through investments of c. USD 2.4 Billion across the value chain since FY 09 to FY 19, KE’s management focused on enhancing fleet efficiency, reducing T&D losses, and improving operational processes to unlock value for the customers, ensuring an improved level of service for the citizens of Karachi.

Post privatization, K-Electric identified that there was a dire need for a revamp of KE’s customer care platforms. To this end, the company introduced Integrated Business Centers (IBCs) across 30 different areas in Karachi. These IBCs were a major upgrade from the old customer service centers and the objective was to provide a one-stop solution to the consumers of electricity in Karachi. These IBCs also contributed significantly in improving administrative control in various locations. KE was the first utility in Pakistan to receive ISO certification for its customer service centers.

Moreover, to further its cause, KE introduced a performance-based incentive program for its employees to improve morale and productivity, which ultimately had a positive impact on customer services. The result of this initiative was:

• Greater accountability across teams with targeted KPIs
• Improved customer service, work environment and culture
• Better access to challenging areas of the city
• Reduction in T&D losses and improvement in recovery

Moreover, state-of-the-art 118 call center was established to streamline all complaints for efficient and timely resolution. A feature of the helpline is to offer priority service to KE’s star consumers.

Keeping up with the global trend of providing services through alternate digital platforms, the KE Live App was launched in 2019. This app is meant to provide customers with several features on their fingertips. The app includes billing details with historic data, duplicate bill downloads, and integrated unit consumption comparative graphs. Other features include live power status update, the option to report power theft and to lodge complaints. Consumers can also use the app to locate their nearest customer care center.

Other facilitations offered to consumers include IBC on wheels (customer support on their doorstep with mobile vans), customer centric website, Asaan meter, round the clock engagement via social media forums and implementation of SAP ISU, a state-of-the-art customer relations and billing management system.

KE’s approach to costumer centricity spans several avenues, including local community engagement, whereby KE conducts Mohalla Drives and engages with the elders and dwellers of the community to understand their dynamics and provide them with customized solutions to their power related problems.

Given the unplanned nature of urban development in Karachi, several primary and underlying external factors compromise the integrity of the power infrastructure. One of the major intrusions to KE’s network is illegal streetlights in different areas of Karachi.

These streetlights and their switches bypass electrical safety mechanisms thus creating public safety hazards and resulting in unfortunate incidents. They are usually installed with virtually naked wires without adhering to any safety protocols, leading to leakage of electricity current, which creates a potential safety risk. Moreover, KE conducts drives for the removal of these streetlights and switches every year. This year alone, KE has removed around 10,000 hazardous switches and wires from its poles.

It is essentially the job of the city administration and other civic bodies to ensure that Karachi is made free from encroachments, be it on the ground or on electricity infrastructure, which also includes unsafe street-light switches. To this end, KE has also filed a Constitutional Petition whereby KE has invariably raised the concern that its network is being compromised by the installation of these illegal streetlight connections and it is imperative that they be removed immediately.

The potential threat these switches pose to both KE’s staff and the public is heightened immensely during monsoon due to wet poles and waterlogging around KE infrastructure. These illegal practices also compromise the integrity of KE’s operation system hence causing disruption in the power supply to our consumers.

KE has been granted the exclusive Distribution License under Articles 3 & 7 of its Distribution License, which is protected by virtue of Section 50 of the NEPRA Amendment Act 2018, which imply that no person/entity other than K-Electric can distribute and/or sell power/electricity in KE’s service territory.

The distribution and sale of electricity through unauthorized installation of generators in the exclusive service territory of K-Electric is rampant in different areas across the city. These include prominent neighborhoods in areas like Hub Chowki, Saeedabad, Khadda Market, Noorani Masjid, Mewa Shah, Banaras, Nashtar Road, Hina Plaza, Shaheed Arcade, Hijrat Colony, Garden, Ranchoreline, Malir, Drig Road, Roshanabad, Shah Faisal, Korangi, Golimar, and Main Super Highway.

These unlawfully installed generators in different areas of Karachi are being used for commercial purposes. This creates substantial safety hazards due to the use of unprofessional and substandard material including but not limited to switches, wires, cables, and other electrical installations. As the said unlawful network is being operated by non-professionals, it is prone to serious accidents including fatal ones.

Moreover, due to these networks, KE faces the issue of identifying faults and rectifying them, which causes delays in solving consumer complaints. Since these networks also leak current, KE has to face the brunt of accidents occurred as a direct result of this. Additionally, fatal and non-fatal accidents happen when wires of these generators, illegally placed over the KE infrastructure, come in contact with KE’s wires.

In this regard, KE raises these issues to the Electrical Inspector (EIK) time and again and requests for an amicable resolution. KE has also served notices to the owners of these unauthorized generator operators and has conducted drives with Law Enforcement Agencies for the elimination of the same.

Under the Industrial Support Package (ISPA), zero-rated industries were being given a relief of PKR 3 per unit during off-peak hours across Pakistan since 2016. This subsidy was withdrawn by the Ministry of Energy (MoE) via a notification in July 2019, however, the notification did not mention the industrial consumers of K-Electric. This decision to discontinue ISPA during off peak hours was taken by the Economic Coordination Committee (ECC) of the Cabinet in its meeting held on June 26, 2019. It was effective from July 1, 2019 and had already been implemented in the rest of the country effective July 2019.

The power utility was constantly in touch with relevant authorities to seek clarity over ISPA for necessary directions and seeking permission wherever applicable on its timeline and implementation. K-Electric continued to provide relief to industrial consumers during off-peak hours under the support package until it received directives/clarification from MoE to discontinue the same on January 2, 2020 and adjust the impact with effect from July 2019.

KE is a responsible corporate entity and follows due process in every aspect of its operations. As such, the withdrawal of Industrial Support Package (ISPA) from July 2019 to December 2019 in the bills issued to industrial consumers is in accordance with the Ministry of Energy’s (MoE) notification and consistent with the bills charged to industrial consumers across Pakistan.

While, KE, like all other DISCOs in Pakistan, is bound to follow the directives of the Ministry of Energy, to ease this process for the industries, the power utility included no surcharge in the amount billed to consumers and offered industrial consumers the option of availing up to six instalments to minimize the impact. The industrial sector has always been KE’s top priority and the power utility has continued to invest in the future of this sector and the city of Karachi.

Between the years 1998 and 2005, the Company incurred losses before taxes of c. PKR 12 Billion annually, with the losses totaling to c. PKR 95.4 Billion during this period. To keep the operations afloat, Government of Pakistan (GoP) had to provide operational subsidy of c. PKR 28.5 Billion to KESC during FY 2003 to FY 2005. Had KE not been privatized, it would have continued on its loss-making trajectory, burdening the GoP in the form of operational subsidy. However, due to the operational improvements made after privatization, KE saved c. PKR 600 Billion for the National Exchequer in 10 years.

Since KE’s privatization, equity injection, along with reinvestment of profits adding up to over PKR 180 Billion, have been made into the company. Through investments of over PKR 280 Billion across the value chain during FY 06 to FY 19, KE focused on enhancing fleet efficiency (increased to 37% in 2019), reducing T&D losses and improving operational processes to improve the overall performance of the company. Further, unlike other private companies, not a single rupee has been paid out as dividends since privatization, rather all the profits have been reinvested into the business, enabling operational improvements across the value chain. The direct results/benefits of privatization can be summarized as below:

1. Over 75% of Karachi is free from load-shed

   Capacity additions across the value chain and segmented load-shed policy led to greater access to power along with over 75% of the service territory being exempt from load-shed, including strategic installations such as hospitals. Electricity development index is strongly correlated with Human Development Index (HDI), which enabled the citizens to have a better quality of life.

2. Industrial Productivity & GDP

   100% Load Shedding (LS) exemption has been given to industries since 2010. Had it not been for KE’s operational improvements achieved in the last 10 years, load shedding in industrial areas would have had an impact of c. 0.5% to 0.7% on national GDP (annual impact of up to c. PKR 200 Billion).

3. 1,057 MW of Generation Capacity added

   Four new highly efficient power plants were added to KE’s generation fleet.

4. Improvement in AT&C losses

   KE made a substantial improvement of 18.1% points in AT&C losses. Has this not been achieved; the government would have lost c. PKR 60 billion in the form of operational subsidy and losses?

5. Profits after 17 years

   Operational improvements led the company’s financial turnaround. KE became profitable in 2012 after 17 years.

6. Customer Centricity at core of Business

   KE introduced 29 Integrated Business Centers in different areas of Karachi to provide dedicated services to all locations in the city. A universal helpline 118 was established to streamline all complaints for efficient and timely resolution


Moreover, through this investments and turnaround initiatives, KE has saved more than PKR 550 billion to the National Exchequer in the last 11 years. Since privatization, KE has made zero contribution to the PKR 2.3 Trillion circular debt.

Following safety measures have been taken by KE in the last year:

1. Pole Grounding: In 2019 KE developed a comprehensive plan for the revalidation of its protection system throughout the company’s network, which entailed the revalidation of protection and grounding system of all identified HT, LT, PMTs and Composite poles and the GIS mapping of all of these poles. The previous system utilized copper which is now replaced with galvanized steel to avoid steeling of copper conductor used for grounding.
2. ABC conversion: KE has converted 9000 PMTs to Ariel Bundled Cable – which ensures greater safety and lesser chances for theft
3. KE has also actively taken a stand on the encroachment on its network:
   • Removed 10,000 illegal streetlight switches in 2020 so far
   • Removed 202,898 Kundas in 2020 so far through its kunda removal drives
   • Constant engagement with Cable Operators to encourage them to phase out the illegal installations on KE infrastructure
   • Community awareness drives in areas that are most vulnerable to electrocutions
   • Legal action against the illegal and unsafe generation and distribution of electricity in KE’s exclusive service territory
   • TV ads for awareness

The power utility also begins its safety awareness campaigns before the onset of monsoons and continues them throughout. KE also conducts safety drives and activities in schools and madrassahs.

In view of the learnings from the 2019 monsoon period, the Company has revisited safety procedures and practices for earthing and grounding to make them less prone to theft. Further, as part of its preparedness the Company has worked on a robust safety plan, which included upgradation of protection system, replacement of bare conductors with ABC, rehabilitation of stolen or damaged grounding on HT and LT network, Public Accident Prevention Plan (PAPP) and other related projects along with extensive public awareness campaigns.

While KE remains committed to ensure provision of safe and reliable supply of power to its consumers and is taking all necessary measures in this regard, support from relevant authorities is critical to combat external factors including theft of earthing and grounding material and illegal and unsafe use of KE’s network.

The TV and Internet cables installed on KE infrastructure are done without the permission of KE, making them inherently illegal. Since they are illegal, there are no safety regulations followed when installing these.

According to a number of investigations and reports – the details of which have been filed with NEPRA as well – majority of electrocution related incidents occur inside consumer premises due to faulty wiring, unsafe use of electrical appliances or because of illegal hook connections and the unwarranted placement of TV and internet cables on electricity poles. These cables and other equipment mounted on electricity poles are at times live and can transmit up to 400 volts. Furthermore, these cables are installed without adhering to the applicable electrical safety mechanisms and the current through them passes to the poles and other downstream infrastructure, creating a severe hazard for the public as well as for the employees of the power utility. Acknowledging these ground realities and operational challenges, including illegal use of electricity poles by cable TV and internet operators, NEPRA has also held consultative sessions wherein the Company shared its recommendations to improve the overall safety of distribution network across the country and the need to create mass safety awareness among the general public.

This unlawful network of wires also makes it difficult for our team to identify and resolve faults attributable to KE, therefore causing delays in rectifying the problem and increasing the resolution time of related power outages.

Additionally, due to leakage of current from these hazardous wires, not only is there monetary loss for KE but also the risk of loss of life is increased manifold. This was witnessed especially in the rains of 2019, where we saw several electrocution cases that happened as a direct result of live current coming from cable wires or the boosters attached to them.

To this end, KE has had several engagements with Cable Associations (PTAPA, KCWA and CAP), which called for a joint effort to phase out these cables from KE poles. KE also shared technical standards for installation/proper arrangement of internet/cable network on K-Electric poles/infrastructure, with PTAPA, Cable associations, and City Administration. However, any concrete action is yet to be seen.

 
Find the copy of the High Court Order here. And the comments submitted by the Commissioner of Karachi here.

The Letter has the minutes of the meeting summarized whereby a mechanism was confirmed to put these cables aligning with the system.

Evident from Figure 2.1 below, KE had the obligation to invest USD 361 million as per the Implementation Agreement, which the company duly fulfilled, as demonstrated in Figure 2.2 below.

Figure 2.3 KPMG Certificate Certifying USD 361 Million Equity Injection

Implementation Agreement – GoP’s Commitments

While KE has fulfilled its obligation under the IA, the company continues to face delays in tariff notifications, release of its Tariff Differential Claims and payment of energy dues of strategic customers, all guaranteed by GoP in the IA.

1. Support in Tariff including Timely Notification: Delay in Tariff Notification along with significant deviation from the Previous MYT, delays in making the Appellate Tribunal functional, and pending notification of NEPRA’s Quarterly Tariff Determination (July 2016 to March 2019)
2. Gas Supply for KE’s Plants including 560MW BQPS-II Plant: Inadequate and unreliable gas supply along with swap of 60 MMCFD of Natural Gas with RLNG at distribution tariff (expensive fuel) – annual impact of c. PKR 23 Billion on fuel cost
3. Payment of energy dues of Strategic Customers, including KWSB: Non-payment of energy dues of strategic customers guaranteed under the IA – KWSB dues have increased from c. PKR 7 Billion in 2009 to c. PKR 28 Billion in May 2020
4. Timely Release of Tariff Differential Subsidy: Delays/non-release resulting in accumulation of TDC receivables – c. PKR 184 Billion pending receivable

Find the relevant clauses of the IA in Figure 2.4

Moreover, KE invested 22% more than the committed amount to NEPRA under the Multiyear Tariff 2009 as demonstrated in the charts below. Previously, KE had an Efficiency-Based Tariff, which enabled investments. However, with the new Cost-Plus Tariff determined in 2016, investments can only be made if NEPRA allows.

Since 2005, KE has invested up to PKR 330 billion in the power value chain. This includes introduction of four modern and efficient power plants through an investment of over PKR 135 billion. KE also invested PKR 185 billion in transmission capacity additions, infrastructure rehabilitation and improvements in distribution platform.

So far, KE has added 1,057 MW of generation capacity, which improved the fleet efficiency to 38% from 30%. The company is on course to improve this further to 48% by the addition of a 900 MW RLNG fired power plant, which will come online in 2021. KE also increased its transmission and distribution network reliability through the addition of 18 new grid stations, 23 new EHT lines, around 900 feeders and c. 130 km of EHT lines, while also rehabilitating over c. 400 km of old EHT lines.

Due to these measures, 75% of Karachi and 100% of industry is now load shed free. Moreover, operational improvements led to KE’s turnaround from a loss-making entity. KE became profitable in the year 2012 after 17 years. Moreover, KE successfully brought down the transmission and distribution losses from 34.2% in FY05 to 19.7% in FY20.

Moreover, K-Electric has an ambitious investment plan in the future which would see USD 2 billion spent across the power value chain over the next three years, including a 900 MW RLNG-fired power plant as well as downstream transmission and distribution upgrades. In addition, K-Electric will be investing in interconnection infrastructure to evacuate 1,400 MWs of additional power from the national grid.

The electricity meters used by K-Electric, as well as other DISCOs in Pakistan, are manufactured by independent suppliers and fulfill global standards.

KE has two kinds of digital meters: single phase and three phase. Both are installed at residential, commercial and industrial premises. Technically, there is no difference between the two except that the three-phase meter is larger in size compared to the single phase one. This distinction is why the single phase meter is usually installed for consumers who have consumption patterns of below 5 KW and three phase meter for consumption equaling to or exceeding 5 KW.

To ensure that only the certifiably best meters are used, KE procures its meters from ISO and PSQCA qualified vendors, both local and international. These are manufactured under the guidelines of International Electrochemical Commission (IEC).

Moreover, in pursuit of transparency in all its operations including metering, KE has established an in-house, state-of-the-art certified lab that tests meters before and after installation from customer premises. These processes strictly adhere to the IEC standards. Also, this facility is open to all KE consumers for a minimum fee who wish to check their consumed units that are displayed on the meter. To know more regarding this option or for any complaints, customers can easily reach out to KE through 118 Call Center, social media forums or by visiting their nearest Universal IBC. Additionally, as these meters are installed at the customer’s residence, they can carry out their own benchmarking by purchasing and installing a meter directly from the market to compare its performance with KE’s meter.

Moreover, with strict protocols in place KE ensures all billing is done fairly and transparently. Since July 2020, as per the guidelines detailed by National Electric Power Regulatory Authority (NEPRA) Consumer Service Manual (CSM), wherever possible, a picture of the meter displaying the current months units is now included in the customers electricity bill.

The utility also ensures that all avenues are available to the customers in case of any dispute. They can record their complaints at a number of touchpoints, such as our Customer Care Centers or by calling our Call Center at 118. They can also log in their complaints via our website at https://keweb-dev-keweb.azurewebsites.net or through our social media platforms. Moreover, in 2016, K-Electric partnered with the Office of the Federal Ombudsman to establish a one-of-its-kind electronic communication network between the FO Secretariat and K-Electric to ensure quick resolution of consumer complaints.

KE has a robust billing system (SAP-ISU) in place that works on both automation and methodology and has multiple level data validation protocols to bill its customers accurately. In case the power utility is unable to get meter readings for any reasons, the average billing mechanism is used to bill the consumers, in-line with the guidelines prescribed under the National Electric Power Regulatory Authority (NEPRA) Consumer Service Manual (CSM)*, which is followed by DISCOs across Pakistan (see figure below).

*Source: https://www.nepra.org.pk/Legislation/Codes/Consumer%20Service%20Manual.pdf, page 14, Section 4.4 (c).

*Source: https://www.nepra.org.pk/Legislation/Codes/Consumer%20Service%20Manual.pdf, page 15, Section 4.4 (e)

This Average billing mechanism utilizes the consumption trend of individual consumer or is based on the bill of the same month in the prior year, whichever is higher. Averaging out over the past 11 months also takes into account summer months, when consumption is generally higher, so the bill may appear inflated to consumers. However, this is adjusted as per the actual meter reading, once physical meter reading resumes.

The average billing formula is very simple. It is based on two calculations, as per the CSM. The last 11 months are considered in this mechanism, and their total is divided by 11 (the number of months, to get the average) and that amount is billed to the customer. The other option given in the CSM is to use the consumption for the same month in the prior year and bill the customer based on that. According to the NEPRA CSM, the higher of these two amounts is used. Also, to clarify, KE has always valued and promoted transparency towards employees and external stakeholders including our consumers. This is evident through regular updates on our websites and other social media platforms regarding any changes in tariff, online energy consumption calculator, FCA schedule etc.

K-Electric has exclusive rights to sell electricity in its service area till July 2023, as per its distribution license. KE’s tariff, valid till June 30th 2023, also considers KE’s exclusive distribution rights while determining operational targets for the company such as sales growth and T&D losses.
The rationale given for termination of exclusivity, and introduction of competition, is to provide customers with i) more supplier options, ii) better services and prices, and iii) enhanced efficiency, in the public interest.

However, this can only be achieved with a level playing field, which will not be the case prior to 2023 as:

1. KE remains obliged to serve its entire service area, including those that are high loss. It also has to sell electricity at a regulated tariff which includes imposing cross subsidy surcharge on good consumers (Industrial, Bulk and High value Residential/Commercial). KE is also held accountable for investing in its network and deal with all related challenges such as transmission and distribution (T&D) losses, encroachment, reliability etc.
2. New players (i.e. housing societies, industrial areas etc.) unlike KE will have no such obligations, and can cherry pick KE consumers avoiding high loss, low collection areas and focusing on low loss, high collection areas. They will also have the option to negotiate their tariff specifically for their preferred customers, hence, no cross-subsidy surcharge. It is important to highlight here that they will not have their own network and will be using KE’s infrastructure for a cost (wheeling charges.) This means that all the corresponding maintenance and investment cost will still remain KE’s burden, bearing all the T&D losses, currently running lower than 20%.

This step would inadvertently have several negative implications for Karachi overall.

As good consumers (low loss, high collection areas) would shift to new suppliers and avoid cross subsidy, KE would take a hit on its revenues. Adding on to this, as the tariff for the remaining regulated consumers would increase as capacity cost and cross subsidy would be allocated to them, recovery for KE will be harder than before, resulting in further diminishing of its profits.

With such an unsustainable model, and earnings being in a downward trajectory, it will be impossible for KE to arrange financing from lenders for its key projects (i.e. 900 MW power plant) and network additions (i.e. additional national grid interconnection points including the requirement to set up grid stations including at 500 kV level).

This would jeopardize both, the generation capacity of KE and reliability of the distribution network as the new players will transmit their power via the existing T&D infrastructure. Without the required upgradations, power supply will soon outmatch power delivery.

Consequently, the demand supply situation in Karachi would deteriorate, despite idle National Grid capacity in Pakistan overall.

Furthermore, KE has been investing hefty amounts in high loss and low-income areas to convert them into low loss areas. The utility’s target to exempt 93% of Karachi from load shed may not happen, with increased load-shed to areas that are currently exempt (75% of the city).

Lastly, with a proposal for privatization of DISCOs, the federal regulator, by amending a license ahead of schedule, is sending a negative signal to potential foreign and local investors. This increase in risk and uncertainty will have a direct impact on valuation of DISCOs.

KE is not opposed to competition, however, the utility suggests, in line with GoP policy, to move towards open market, with a sustainable model. This should have a comprehensive plan, including an appropriate tariff and transition period to ensure continuity of smooth and reliable electricity to consumers.