Karachi, March 21, 2017: The Integrated Multi-Year Tariff Determination issued by NEPRA on March 20, 2017 discourages investment and is ultimately not in the long-term interest of the citizens of Karachi. Moreover, contrary to certain reports, the determination has no impact on consumers end tariff.
K-Electric is currently reviewing the Tariff determination. However, several observations can already be made at this stage:
- The current determination includes no incentive to continue to invest in improving power supply to the people of Karachi and creates significant uncertainty around current and future projects – which will lead to widening the demand supply gap
- The conditions outlined in the determination will result in cash flow constraints that could affect the overall sustainability of KE’s existing operations
- Some of the assumptions in the tariff determination are not reflective of ground realities. For instance, the expectation of 100% recovery and the conditions set forth to ascertain bad debts are not realistic. This assumption, earlier applied by NEPRA to DISCOs across Pakistan, has already been challenged in various Superior Courts across the country
It may be noted that KE had only become a viable entity after 17 years of heavy losses due to significant investment made by the company supported by the previous performance-based tariff structure which was positive for both the consumers and the company. The previous multi-year tariff was a performance based tariff model which encouraged KE to reduce losses and improve its supply and services to the population it serves.
Under the previous tariff model, the power utility has invested USD 1.2 Billion into its network to enhance its Generation and improving its Transmission and Distribution infrastructure that enabled KE to bring T&D Losses down from 36% in 2009 to under 22% in 2016. This resulted in exemption of over 61% of Karachi from load-shed and provision of uninterrupted power supply to all industrial zones.
The new I-MYT derails the huge progress made by the company and jeopardizes the Business Plan.
The power utility maintains continuous dialogue with the NEPRA and will file detailed review of the determination with the Authority.