ISLAMABAD: Karachi Electric (KE) has sought intervention at the highest level for resolution of its regulatory and financial issues as survival and sustainability of power utility company is at stake.
The power utility company’s issues have been raised by its Chief Executive Officer, Syed Moonis Abdullah Alvi, in a letter to former Prime Minister, Shahid Khaqan Abbasi, who is also Chairman PM’s National Task Force on Energy. Copy of the letter has also been sent to Minister for Power Khurram Dastgir Khan, Finance Minister Ishaq Dar, and Minister of State for Petroleum Dr Musadik Malik, Chairman Privatisation Commission and relevant Federal Secretaries.
Prime Minister Shehbaz Sharif has already assigned the responsibility of KE’s affairs to Shahid Khaqan Abbasi, whose team is working in consultation with Ministry of Energy.
KE has claimed that as the most significant power utility company it can facilitate and play its role in future as it has already set the precedent for delivery of cost-effective power to its consumers.
It highlighted some of the following milestones, that it has achieved: (i) Success story of transformation, $4 billion has been invested in KE since its privatisation in 2005; (ii) the targeted and sustained investment enabled KE to double both the customer base and units billed, augmenting the fleet by 1,957-MW (including the 900-MW RLNG project initiated in 2019) while halving its transmission and distribution losses; (iii) before privatisation, KESC, known then, was making huge losses which the Government of Pakistan funded.
Privatisation reduced this burden, as KE has taken no operational subsidy since 2005, although the shareholders have not received a single dollar as a dividend in these 17 years; and (iv) efficiency improvements made by KE have translated into an annual benefit of Rs 170 billion to the Government of Pakistan in the form of a reduction in tariff whereas the conversion of lost units into billed units has enhanced the national tax base with an annual impact of Rs 13 billion.
According to CEO KE, performance of power utility has reaffirmed that privatisation in the power sector can yield significant savings and must be pursued to ease the burden on the government. However, unfortunately, complex regulatory structures, lengthy payment mechanisms, and most importantly, unresolved legacy issues are not only affecting KE’s survival but also hindering the privatisation vision of the government.
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Appreciating Prime Minister Shehbaz Sharif for setting up a taskforce under former Prime Minister Shahid Khaqan Abbasi, CEO KE noted that the latter’s depth of understanding gives the power utility comfort and confidence that its issues will be well understood.
CEO KE maintained that unresolved issues have accumulated over time and have now emerged as a grave challenge not only for KE’s sustainability but also for other strategic entities like CPPA-G and SSGC.
The power utility has sought Abbasi’s help for execution of Power Purchase Agency Agreement (PPAA), Interconnection Agreement (IA) and Tariff Differential Subsidy Agreement.
According to power utility, these agreements are critical to ensure continuity of power supply to Karachi and avoid further accumulation of circular debt, suggesting a summary is required to be moved by Power Division placing these agreements including a few open items before the competent forum for decision and way forward Alvi has also demanded that summary of Quarterly Tariff Adjustments for July 2016 to June 2022 needs to be moved by Power Division for approval of ECC as the consequential financial impact has crossed Rs 280 billion on KE’s Tariff Differential Subsidy (TDS) receivables from GoP (up to September 2022) and additionally Rs 69 billion already verified is also pending by GoP.
Talking about release of due amount, CEO KE has claimed that as of October 2022, KE has a net TDS receivable of Rs 88 billion (TDS receivables less CPPA-G payables) on a net principal basis including amount pending NEPRA determination, adding that even if not yet determined parts are excluded, the net TDS receivable of KE stands at Rs 45 billion.
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He urged for the release of at least Rs 45 billion along with amount receivable in respect of Pakistan Post of Rs 4 billion and sales refunds of Rs 8.6 billion on an immediate basis as it is critical for KE to make necessary payments for fuel and salaries.
“KE today stands at the brink of its borrowing from the lenders. With an exorbitant increase in finance costs, amicable and immediate addressing of these issues is critical for Karachi’s continued prosperity,” Alvi maintained.
CEO KE has also placed the following submissions: (i) Regulations must be simplified; (ii) deregulate the sector, and have a level playing field across the country; (iii) encourage entities to compete in a fair market where the price is demand driven; (iv) add efficiencies in the energy sector value chain, in turn, pass benefits to the consumers; and (v) induce digitalization for transformation in the larger Discos.
”These synergies will create a win-win situation, eventually enabling the government to be out of the clutches of circular debt, giving a strong message to local and international investors that are eyeing to invest in the country’s power distribution and other value chains,” CEO KE concluded.
Copyright Business Recorder, 2022
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