There are two important NEPRA hearings taking place today which are interlinked and can provide more clarity and direction on the future of the power sector. The first is on the license renewal request of K-Electric. To remind the readers, the exclusivity of distribution companies has ended in Pakistan’s power sector since July 2023, and all XWDISCOS have also been provided non-exclusive licenses for a period of 20 years.
The hearing is based on the comments sought by NEPRA earlier this year on KE’s license petition which was made public. There are 17 issues being framed which primarily aim to evaluate KE’s performance and improvements since privatization, and whether privatization achieved its expectations.
There are questions about the capital deployed towards digitization of operations, efforts to minimize environmental impact and inculcate sustainable practices, and how they are managing load-shedding. The answers to many of these questions are already part of public record. Recently KE issued its Sustainability Report which shows how the company is working on majority of UN SDGs. Their Power Acquisition Program also details the addition of renewable energy into the mix and recently NEPRA held hearings on RFPs for four renewable projects as well.
Various reports and company’s own annual financial statements include evidence that generation capacity has been enhanced, customer base has doubled, and most importantly line losses have been reduced significantly. There is also frequent coverage of the progress on the offtake of additional power through the NTDC network.
Investment in infrastructure is resulting in growth in electricity usage and also translating to greater industrial productivity. Most importantly, the privatization has eliminated KE’s contribution to circular debt by making profit and loss their responsibility.
This sentiment is also being echoed by various industrialists and industrial associations. There is an understanding that company’s investments have yielded results. There is also support for their investment plans to further bolster infrastructure for the future. At the same time, many of these industrialists have also inquired about the future mechanism of the CTBCM or competitive model which allows eligible customer (using more than 1 MW) to enter direct contracts with power producers.
This is where the second hearing becomes very important which is on the use of system charges for XWDISCOs. These are the costs that will be incurred in transferring power from a power producer to the power consumer, and they have to be prudently planned. If they are too cheap, it will prevent the distribution company from recovering true costs and maintain infrastructure for reliable power supply. If they are too expensive, it will defeat the spirit of competition by becoming prohibitive for eligible customer to switch out.
The second hearing will address important questions of cross-subsidy and stranded costs and whether and how these charges should apply to captive consumers wheeling electricity power from their captive generation plant for their own use, i.e. same company, which are using DISCO’s network.
NEPRA has been working actively to address these issues because policy-level clarity is imperative for the success of CTBCM and market liberalization. Today’s hearings and subsequent decisions are an opportunity to ensure the right direction.
It’s imperative that NEPRA support private entities in the distribution business by renewing KE’s license. And it’s equally important to have a fair wheeling charges on bulk consumers which mainly are industrialists, as having power at right pricing is critical for manufacturing competitiveness, and for future investment.
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