K-Electric Refutes Excessive Collection

K-Electric Refutes Excessive Collection

Karachi, 27th January 2017: K-Electric has out rightly rejected recent media news with reference to any claims of excessive collection and labelled the same as wrong interpretation of the tariff mechanism. The utility has further stated that the consumers have been charged as per approved tariff without any anomaly.

KE has reiterated that the Multi Year Tariff (MYT), designed by International Consultants based on global best practices, was approved and notified by the Ministry of Water and Power (MoWP) in 2002. The Multi Year Tariff is primarily a performance-based tariff where K-Electric earns through improvement in its performance against set benchmarks in the tariff. These benchmarks include Transmission & Distribution Losses, Plant Efficiency, and Operations & Maintenance Costs. KE earnings directly depend on efficiencies achieved by the utility against these benchmarks. Unlike other Distribution and Power Producing Companies, there is no fixed return in KE’s tariff mechanism nor any guaranteed returns. This is in contrast to other private sector investments in the power sector that have an average of 17% guaranteed Dollarized returns.

KE has made significant improvements through investments of more than US$1.2 billion across Generation, Transmission and Distribution segments in the past six years. KE has to-date not paid out any dividend and the profits declared in annual audited accounts have been used to net-off accumulated losses and re-invested into the business. This in turn has benefited consumers through improvement in supply and quality of service.

Also, the approved MoWP guidelines annexed to tariff determination of 2002 explicitly allow a tariff structure for KE in recognition of it being a vertically integrated utility, versus other Distribution companies. It is pertinent to mention that these guidelines and Tariff were issued much before privatization of KE and were based on internationally recognized mechanisms and practices in various countries.

A comparison of KE’s audited accounts from FY 2010 to 2015 with large IPPs in the country shows that the average pre-tax Return on Equity (ROE) to KE is negative 0.5%, whilst that of IPPs ranges between 24% to 40% over the same period of six years. These figures clearly contradict claims of any excessive collection by the power utility which are erroneously misinterpreted and wrongly mentioned in the recent news.

K-Electric also mentioned that there has been no violation of any tariff regulation and all monthly fuel price variations are passed on to the consumers as per the approved tariff mechanism. Additionally, over the period of last six years the transmission and distribution losses have been reduced from 36% to 22% and 61% of the city has been exempted from load shed. This is a significant achievement considering KE serves a city of over 22 Million consumers where despite great efforts, huge pockets of unplanned towns and infrastructure exists and which is also infested by power theft and kundas. Despite these challenges KE continue to serve its customers, and continues to invest in improving efficiency and services.