KE seeks raise in tariff

K-Electric has submitted a Multi Year Tariff (MYT) petition with Nepra seeking an increase in tariff by 66 paisa per unit in the name of Operation and Maintenance (O&M) component for ten years commencing from July 1, 2016 to June 30, 2026. The total financial burden on consumers has been calculated at Rs 70 billion. The power utility has also sought a change in claw-back formula threshold from 12 per cent, 15 per cent, 18 per cent to 15 per cent, 18 percent and 20 percent.
According to the management of KE, in the existing tariff adjustments, the level of X factor in the O&M cost adjustment formula should be lower than the current levels or 30 per cent of increase in Consumer Price Index (CPI). In the existing tariff, a working capital component should be included to cover late payments by government entities and Government of Pakistan (GoP) in respect of Tariff Differential Subsidy (TDS) claims due to circular debt. In existing tariff, a force majeure would be included for the allowance of irrecoverable costs of lost revenue from the business disruption in case of force majeure.
In the summary, KE plans to raise Rs 96 billion of long-term debt facilities for investment in generation, secure long-term financing of Rs 114.5 billion for investment in transmission and distribution and repayment of existing long-term debt of Rs 29.9 billion (as at December 31, 2015) over the next regulatory period. In addition, KE plans to continue to use short-term facilities of Rs 61 billion to finance its working capital requirement.
KE''s peak demand is expected to grow from its current level of 3,056 MW to 5,243 MW by June 2026 ie an increase of 72 per cent. Through proposed addition in capacity KE has planned to enhance the performance and robustness of the system and reduce the duration and frequency of interruptions. The power utility has also developed a business plan that delivers increased capacity and improvements in the quality of supply while ensuring that electricity remains affordable for its consumers. The company argues that in real terms the tariff will decline from Rs 15.5 per unit in 2016 to Rs 12.7 per unit in 2026.
KE also maintains that it is exposed to higher risk as it does not benefit from sovereign guarantees and also has to bear the complete tax burden. Accordingly, the business plan envisages that KE generates sufficient returns to make the required investments in infrastructure while maintaining financially security. At the same time, the clawback mechanism in the current tariff structure ensures that the benefits of the efficiency gains are shared with consumers above a certain threshold. Hence, investors do not make excess profits.