Ministry of Energy (Power Division) has reportedly withdrawn "exceptional" support to Karachi Electric (KE) extended by a senior officer of Power Division purportedly on "direct" instructions of Prime Minister aimed at granting upward revision in Multi-Year Tariff (MYT) in accordance with the company''s own assumptions, well-informed sources told Business Recorder.
On December 5, 2017 the federal and Sindh governments supported KE for an upward revision in MYT for seven years to be effective from July 2016 to June 2023 so that the company should become financially viable by lowering recovery and losses benchmarks. The interesting aspect of the hearing was that KE''s consultant was seen as representing the federal government (only Power Division) as according to the Supreme Court''s judgment, the federal government is federal cabinet and not the prime minister, minister or secretary of the ministry.
The sources said the Authority was surprised to see the Power Division as supporting the MYT reconsideration request of KE with "full devotion" and it wrote a letter to secretary Ministry of Energy (Power Division) and sought his position on the tariff reconsideration including the stance taken by the senior official during public hearing on December 5, 2017.
The regulator, sources said, was of the view that during the hearing, the representative of the federal government stated that the federal government fully owns and supports the submission made by KE and their consultants.
However, the Authority noted, "Having said that the Ministry of Energy expressed a contrary and divergent view in its letter of December 4, 2017, which was circulated amongst the Authority during the public hearing and its earlier correspondence of January 26, 2017."
The Nepra in its letter had requested the federal government to provide its comments in writing on the issues framed by the Authority and also confirm whether the federal government fully endorses the submission made by the KE in its letter which formed the basis of the reconsideration request including KE''s and consultants'' submissions during the hearing.
The Power Division, in reply to the Nepra''s letter conveyed that it retreats the contents of letter written on December 4, 2017 and further clarifies that the final decision on tariff is to be taken by the regulator keeping in mind the policy directives of the federal government ie tariffs determined by Nepra should not only ensure the ability of KE to provide adequate service delivery to the consumers but it should also offer a conducive investment environment to encourage future privatization and increase the private sector footprint in the power sector.
"It is for the regulator to make a final decision regarding whether the impact of the grounds of KE supports the government''s objectives or otherwise," the sources quoted Power Division as saying in the letter.
During the hearing, the only representative of the federal government while endorsing MYT reconsideration request of KE had stated: "Tariff given in review petition of KE merits reconsideration and in case of denial by the regulator, it might affect consumers."
He further went on to say whatever volume of subsidy the Nepra would determine, the federal government will it extend to the power utility company. The KE consultant who also represented the federal government (without any official engagement letter) stated the federal government will not have any objection even if tariff is increased for consumers to facilitate KE''s tariff reconsideration request.
Chairman Nepra, who is former managing director of the then KESC, was of the view that the KE is in profit but the question is how a company could be in profit whose recovery ratio is 89 per cent against target of 96 per cent and losses of 22 per cent against allocated losses of 15 per cent. He contended that both key benchmarks are missed. "Which miracle has made the company a profitable organization? Is KE in profit due to low recovery and higher losses or higher tariff?" the chairman Nepra questioned.