Shanghai Electric transaction at mercy of KE’s markup issue

Karachi’s economic future and Shanghai Electric Power (SEP) transaction are dependent on K-Electric’s (KE) financial health, which itself is at the mercy of the decade-old issue of markup, the power utility has with government entities.

Karachi Water and Sewerage Board (KWSB), owes KE Rs 28 billion in unpaid dues. According to KE, this amount is fully reconciled between both parties with CFO KE, Aamir Ghaziani stating categorically, “There can be no doubt that this amount must be paid to KE. It is also important to realize that had this amount been paid when due, the current situation where SSGC claims grossly inflated markup of over Rs 90bn on delayed payments, would never have arisen.”

Ghaziani pointed out that similarly, in the case of NTDC/CPPA and KE, the payables should be netted directly against the receivables of Tariff Differential Claim which has crossed Rs 200bn principal amount receivable from the government.

“Had K-Electric calculated a mark-up on receivables from Government entities, KE would be in a net receivable position. If KE is liable to pay any mark-up, then on the basis of reciprocity, markup should be paid to us or the dues should be settled on a net basis,” he added.

It is pertinent to mention that the stock of KE receivables on account of tariff differential from the Finance Division stood at Rs 200.7bn (principal) whereas payables to SSGC are Rs 107bn, of which Rs 93.3bn is markup while Rs 13.7bn is the principal. Whereas, KE's payables to NTDC are Rs 198.8bn of which Rs 143.8bn is principal whereas Rs 55bn mark-up.

The KE's total receivable stood at Rs 229.03bn (principal) while its payables are Rs 305.8bn with mark-up.

Meanwhile, the power utility is continuing to pay its monthly operational costs, according to Ghaziani, increased borrowings have funded the working capital requirements of the company resulting in financial costs tripling over just a few years.

If legitimate dues owed to the power utility are delayed, and the issue of markup remains unresolved the utility will be rendered unsustainable by being forced towards expensive financing necessary to bridge operational costs and manage investments of over PKR 267 bn across the power value chain in the next three years.

KE plans to increase electricity generation up to 4,511MW and build more grids up to 78 and increase distribution capacity to 8,794MVAs and increase the LS Exemption Feeder up to 93 in numbers by 2023.

Furthermore, with the 900 MW power plant located at Bin Qasim upcoming in 2021 and transmission upgrades to evacuate additional power supply from the national grid underway, the power utility’s financial needs have burgeoned.

If the vertically integrated power utility doesn’t have the money to expand its generation, transmission, and distribution fleet, then the citizens of Karachi may continue to experience power issues.

The KE’s CFO informed that the company has highlighted its concerns to relevant stakeholders in the Federal and Provincial government entities for a swift and equitable resolution of these long-standing issues.