ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Tuesday reserved its decision regarding the write-off of Rs 68 billion claims from K-Electric (KE) for the period of 2017 to 2023, following arguments and counterarguments between the Nepra members and the KE team, as well as opposition from Karachi’s industrial representatives.
The Nepra panel, which included Chairman Waseem Mukhtar, Member (Technical) Sindh Rafique Ahmad Shaikh, Member (Tariff and Finance) Mathar Niaz Rana, Member KP Maqsood Anwar Khan, and Amina Ahmed (Member Law), officiated the public hearing.
The amount of write-off claims is as follows: (i) FY 2017, Rs 6.195 billion; (ii) FY 2018, 3.371 billion; (iii) FY 2019, Rs 4.050 billion; (iv) FY 2020, Rs 7.492 billion; (v) FY 2021, Rs 16.040 billion;(vi) FY 2022, Rs 14.489 billion; and (viii) FY 2023, Rs 16.264 billion.
During the hearing, KE’s Chief Financial Officer (CFO) Aamir Ghaziani explained that if the write-off claims were approved by the Authority, the amount would be adjusted within the previously allocated Rs 88 billion for the financial year 2024-25. This would be incorporated into the tariff though it is up to the government to decide how much of the impact will be absorbed by the state and how much will be passed on to consumers.
Nepra’s Member (Finance) challenged KE’s claim for the 2016-17 period and requested a justification for the demand. The KE team argued that because the Multi-Year Tariff (MYT) determination does not specify a particular period the company has the right to claim unpaid amounts from consumers.
KE’s Chief Executive Officer (CEO) Syed Moonis Abdullah Alvi stated that the national recovery ratio is around 90%, while the remaining 10% is part of the circular debt, which currently stands at approximately Rs 2.8 to Rs2.9 trillion. This debt is being recovered through surcharges from consumers, which are routed to the Power Holding Limited (PHL). He emphasised that KE consumers are paying surcharges for circular debt despite having no involvement in it. He questioned whether a write-off claim of 3.6% of total recovery would be considered prudent and suggested that such claims should be included in the tariff.
When questioned about electricity theft in Karachi, KE’s Chief Distribution Officer Sadia Dada explained that many people in Karachi do not consider electricity theft as a crime. However, Member (Technical) Rafique Shaikh expressed concern over this remark, stating that accusations of theft should be directed at only a small fraction of people. KE responded that “no-go” areas in Karachi have decreased to just 0.2%, with more people now opting for legal connections and paying their bills. KE added that law and order conditions were part of the Transmission and Distribution (T&D) losses.
KE CEO Moonis Alvi and CFO Ghaziani underscored the financial strain caused by unpaid dues. They explained that while Nepra’s 2018 determination allowed for a 1.69% provision for recovery losses, KE has yet to receive any compensation for these losses under the MYT. Of the Rs 119 billion in bad debts recorded in its audited accounts, KE has requested approval for Rs 68 billion, asserting that these claims adhere to Nepra’s established verification criteria.
A key issue raised during the hearing was the inclusion of Rs 24 billion in write-offs from FY2016, which predates the current MYT period. Alvi argued that write-offs inherently relate to previous liabilities and emphasised that regulatory consistency is crucial for fair treatment. He noted that Nepra’s conditions did not specify a restriction on the fiscal years eligible for such claims.
KE also highlighted its recovery efforts, which include disconnections, engagement of external recovery agencies, and instalment payment options for defaulters. Despite achieving a peak recovery rate of 95.4% in FY2022, macroeconomic factors and tariff hikes have since undermined the utility’s ability to sustain high recovery rates. Ghaziani emphasised that KE’s write-off claims strictly pertain to billed but un-recovered amounts and do not include energy theft or unbilled units.
Representing the Karachi Chamber of Commerce and Industry (KCCI), Tanveer Barry rejected the write-off claims. He argued that KE’s claims would unfairly impact the honest consumers who pay their bills on time and are not involved in theft. He pointed out that Karachi consumers already face Rs 100 billion in pending dues because of KE’s stay orders and are paying a surcharge unrelated to KE’s consumers.
Barry also noted that under Pakistani law, the statute of limitations applies to financial claims, and KE cannot claim the same doubtful debts twice if they were previously used to reduce profits for clawback calculations. He further argued that KE could not claim non-recovery of bills for hook connections, as KE had already been provided a margin of 5.2% in its base tariff to account for losses due to law and order, which included hook connections. Additionally, KE did not adhere to the rules and regulations of the Circular Sales Margin (CSM), and bills that are only a few months old cannot typically be written off unless specific conditions are met.
All commentators and interveners, Arif Bilwani, Jamaat-e-Islami, Federal B Area Association of Industry, Pakistan Association of Large Steel Producers, All Pakistan Processing Mills Association, SITE Association of Industry, Corporate Group of Pakistan and OICCI, except Rehan Jawed, objected the claims of write-offs.
According to Rehan Jawed: “after detailed understanding of the matter and discussion with K-Electric, if the write-off claims are not granted, K-Electric’s sustainability and investment plans will be impacted, negatively. He said that he acknowledges that 100% recovery of these claims is not possible in a city like Karachi. However, these adjustments are part of K-Electric’s tariff under the Multi-Year Tariff framework, and no additional financial burden should be placed on Karachi’s consumers. The city’s industries are already dealing with higher FCA charges, pending subsidy packages, and an unjustified PHL surcharge. Additional costs in electricity bills could lead to widespread industrial closures. The write-off claims should be resolved as it is a determined tariff issue between the government of Pakistan and K-Electric, and if allowed, the consumers should not bear the cost in the form of any surcharge or separate billing head.”
Former Prime Minister Shahid Khaqan Abbasi, who had headed an Energy Task Force in 2022 focused on K-Electric’s issues, shared his insights. He stated that the Task Force had reviewed MYT and noted that for the fiscal years 2017-2022 KE had claimed Rs 43 billion. The Task Force had recommended payment of these claims although procedural issues were involved and the claims were pending verification by an independent auditor. He emphasised that the MYT conditions required verification of the claims before Nepra’s approval.
Copyright Business Recorder, 2024
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