To have sustainable tariffs and to ensure the continued availability of electricity, investment in the supply and distribution network of Discos is required. In this regard, the only private entity in the sector, KE had earlier submitted its Multi-year Tariff (MYT), and after a protracted process, KE’s MYT proceedings finally concluded with an extended hearing on the 27th of June. The topic of discussion was the transmission, distribution, and supply of petitions.
The discussion was the result of an extended process that saw hearings on each business element, the investment plan, and the future power acquisition program. Within it, the supply business is the new entrant in the system because NEPRA guidelines have bifurcated the network into technical (distribution) and commercial (supply) businesses.
KE has now received decisions on investments of about $2 billion over the next 7 years which will augment the transmission network. New grids, expansion of transmission lines, and stronger interconnections to off-take electricity from the national grid are on the cards. Similar expansion and innovation are also planned in the distribution segment.
The hearing last week was focused on the financial element of the investment plan, essentially the revenue requirement. So, the discussion revolved around prudent indexation against inflation, interest rates, exchange rates, and other macroeconomic factors.
These are all linked with the concept of providing utilities with a sustainable tariff that enables them to invest in the future and maintain or improve their financial health. In the case of XWDISCOs – where privatization remains a key focus of conversation – this is a key to attracting investment.
Public sentiment however focused on the misperception that the discussion would be impacting customer bills, and the conversation veered off tangents critiquing KE’s “continued dependence” on the National Grid and inability to address systemic inefficiencies.
Not only were such discussions outside the scope of the hearing, but they also represented a lack of depth in the commentator’s understanding. For instance, KE’s petition itself mentioned that investments in the system and post-privatization improvement had enabled the utility’s cost of electricity to lower by as much as Rs17 per unit.
This was not being charged to customers, but directly relieved pressure off the government by reducing the subsidy burden. It’s also perhaps time for the sector to reevaluate the jargon and the processes that it uses. Customers are charged an electricity rate in bills which we know as the uniform tariff.
Costs incurred by utilities can vary greatly, as evidenced by decisions issued by NEPRA on the indexation of XWDISCOs for FY24-FY25. The costs are between Rs 30 to 52 per unit depending on the DISCO, its efficiency levels, units sold, and other factors. However, this is also a part of the Multi-Year Tariff.
For the average customer, it’s easy to lose the forest for the trees and connect everything with just their bills. It’s a question to ask whether the regulator should clarify the distinction, or who should shoulder the responsibility.
Similarly, we often see hearings descend into tangential conversations and unrelated areas, which hinder progress. Public hearings are a good practice to encourage transparency and should be continued but attention should be paid to curating the conversation according to the topic under discussion.
With the increasing complexity in the power sector, it is imperative to open the floor for intelligent conversation that can add value and help policymakers identify any blind spots. Our collective focus needs to be on scrutinizing the tariff petitions from the view of driving efficiency, stability, and financial viability of the players involved - essentially, a depoliticized decision.
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