ISLAMABAD: National Electric Power Regulatory Authority (Nepra) on Tuesday quizzed K-Electric’s top management for seeking multi-year “cost reflective” generation tariff with some modifications from its existing tariff and other incentives.
The Authority Comprising Chairman, Tauseef H Farooqi, Member Sindh Rafique Ahmad Shaikh, Member Khyber Pakhtunkhwa Maqsood Anwar Khan, Member Balochistan Mathar Niaz Rana, and Member Punjab Amina Ahmed raised a number of questions during a public hearing on K-E’s generation tariff from July 1, 2023 till useful life of its six power plants.
KE’s team comprising Chief Executive Officer (CEO), Syed Moonis Abdullah Alvi, Chief Financial Officer (CFO), Aamir Ghaziani and Chief Generation and Transmission Officer, Abbas Hussain responded to the queries raised by the Authority its technical officials.
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KE has sought dollar-based return of 15 per cent, cost local debt on the basis of three moths 15.16 per cent KIBOR + 2.5 per cent premium for local component. The petitioner has requested cost of foreign debt in case of BQPS-III on the basis of three months LIBOR (2.29 per cent) + 4.5 premium and hedging cost @ 15.37 per cent and insurance cost @ 1 per cent of EPC cost.
The company sought the regulator’s approval to recover genuine business costs incurred to make adequate power supply available for Karachi.
KE in its generation tariff has sought capacity charges of Rs 5.11 per unit, Rs 1.67 per unit as O&M of plants, Rs 36.97 per unit for Bin Qasim, Rs 35.69 per unit for generation on HSD, Rs 9.62 per unit from indigenous gas, Rs 48.73 per unit for Bin Qasim-II and Rs 40.99 per unit from Bin Qasim-1.
The issue of cost reflective tariff came under discussion when Chairman Nepra proposed financing cost based tariff for the power utility company.
KE rejected the proposed of Chairman Nepra saying if the Authority goes for financing cost based tariff it would be discrimination with power utility company, which has already been experiencing step motherly treatment since privatisation.
He said, IPPs are allowed cost of debt but this facility is not available to KE.
He was of the view that Discos have already been allowed a surcharge of Rs 3.08 per unit, which is not available to KE, adding that the power utility’ company’s bad debts have already reached Rs 30 billion.
He maintained that KE has brought substantial improvement in efficiency with investment. He said KE’s efficiency is now 48 per cent from previous 30 per cent. T&D losses have been reduced to about 15 per cent from 45 per cent. Financial impact of one per cent loss is Rs 6 -7 billion.
“The per unit cost of KE would have been Rs 80 per unit if it was not privatized and substantial improvement not made in system including generation, transmission and distribution,” he added.
Nepra officials stated their interest in bringing all Pakistan under one framework of central dispatch of electricity. In this regard, separate tariffs have been filed to achieve harmonization with the national policy
These requests are in line with Nepra’s guidelines and are part of the future market liberalization via the CTBCM framework and further reforms within the power sector.
A separate plan has been shared for the future addition of power projects. CFO shared that 2200-MW of power generation is expected to be added by FY30 of which almost 1200-MW is based on renewable energy sources.
Each percentage improvement is benefiting the national exchequer by estimated PKR 3.5 billion in the form of savings
In response to justification for tariff on Take or Pay basis, KE CFO clarified that the existing power plants are brown field projects consistent with the authorities’ principles and past policies, which requires a two-part tariff. Power plants must be kept available 24/7 which will be reflected in their capacity, and hence Take or Pay request is fair.
Induction of efficient power plants will further lower the cost of production and a further savings can be enabled if well-head gas is made available.
Nepra officials also inquired about the harmonization between KE and System Operator and the mechanism through which availability of plants will be monitored. In this regard CFO clarified that the company is working closely with System Operator and is making headway on the same. As regards availability, KE would follow industry practice of sharing hourly reports on the availability of its power plants.
KE’s team shared that lack of cost-reflective tariffs were a major contributing factor. KE’s cost of debt is pegged at 12.5% whereas the current spread is 23%. Furthermore, a lack of dollar-based indexation in tariff – an industry norm – was impairing KE’s ability.
Consistency in policymaking would help create an enabling environment for the power sector to thrive. Despite this, cumulative impact of investments and improvements in power plant efficiencies has resulted in savings of Rs 700 billion to the national kitty.
Chairman Nepra also said that any concern regarding past tariff will be addressed by Nepra also. Commenting on the matter, Spokesperson at K-Electric said: “We would like to thank Nepra for providing us the opportunity to explain the salient features of our petition in greater detail.
Our vision with the generation tariff petition is to ensure that the costs of electricity production are lowered through efficient usage of the power plants with an optimized fuel mix.
Furthermore, it is to seek the regulator’s approval on the costs incurred to maintain and operate our plants so that adequate supply is readily available to meet demand. This is a step towards achieving our vision to have 30percent supply in our energy mix from renewables by 2030 to enable access to affordable power for all.“
A hearing on KE’s PKR 484 billion investment plan in transmission and distribution until FY30 was held in March. Additionally, the company has filed for a non-exclusive distribution license and has shared a Power Acquisition Programme which outlines the addition of up to 2200 MW of electricity by FY30. A majority of the upcoming addition is based on renewable energy or indigenous sources.
Tanveer Barry, representative of KCCI said few KE plants have completed their useful life whereas few are inefficient and producing expensive electricity and consumers pay more in terms FCA.
He was of the view that there are some efficient plants in Karachi’s territory but the power utility is insisting on generation from its costliest plants. He said KE plants are generating 300% expensive electricity as compared to power being purchased from CPPA-G.
Copyright Business Recorder, 2023
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