Financial viability of distribution companies is the key for the sustainability of the power transmission and distribution system. And for that cost-reflective tariffs imposition is imperative. Lately, Discos are making this common request to ensure the interest of customers and the financial sustainability of the DISCOs.
This is mentioned as a key aim of the IESCO Distribution petition on the NEPRA website, stating that it will improve service quality and reliability in servicing its current and future customer base while ensuring enough funds are available for investment in the network. Meanwhile, FESCO is requesting a bi-annual WACC (interest rates) adjustment for RORB (return on rate base) calculation for the tariff control period.
Alternate Energy Development Board (AEDB) -before being merged with PPIB, wrote a letter to NEPRA citing imprudent planning as a reason for the failed 600 MW Muzaffargarh Solar Project which did not receive any bids despite three extensions to the deadline for RFPs, and a reported 12 purchasers of the RFP documents.
The apprehension is that benchmark tariff determination did not take into account the impact of current market prices for equipment, high-interest rates, non-indexation against benchmark interest rates and inflation, unavailability of long-term financing, Pakistan’s fluid macroeconomic situation, and project implementation timelines.
Similar sentiments were echoed by LESCO in a letter written in June to NEPRA stating that the prices of supplies and materials related to multiple projects have escalated significantly due to inflationary impact and delays in opening of Letters of Credits by SBP and depreciating currency which makes it impossible to complete projects within allocated timelines.
They have cited an example of the cost of three-phase smart meters for the AMI project which have risen from Rs22,000 to Rs42,500 in 9 months between March 2002 to December 2022.
Another bind on LESCO was a bar on reappropriation under different accounting heads, and the need to submit additional investment requirements in case of investment under any head was deviating by 5 percent.
These impact the confidence of investors – both local and foreign. Then, in K-Electric’s investment plan which pends NEPRA approval, similar requests have been made for flexibility and appropriate indexation with a review mechanism every two years. Rs484 billion plan has been made till 2030. However, like other DISCOs, it was developed at a time when the PKR/USD parity was much lower than current levels, which would necessitate a review and a possible upward revision. Most importantly, it will need to reflect the way that the costs are changing.
On the one hand, customers are being affected by the increasing prices of electricity which is affecting their propensity to pay bills and is increasing theft. Reports indicate that up to Rs500 billionworth of electricity has been stolen in the last 15 months - roughly Rs30 billion per month. This, along with the limited operating capacity of DISCOs is further compounding the problem. Rationality in the tariff setting is warranted.
Comments
Comments are closed.