Nepra's KE MYT decision: PD submits review motion

Business Recorder

03-06-2025

ISLAMABAD: The Power Division on Monday submitted the much-talked about review motion challenging the National Electric Power Regulatory Authority's recent Multi-Year Tariff (MYT) determinations for K-Electric (KE) for 2024-25 to 2029-30. The government is urging Nepra to revise key assumptions, performance benchmarks and profit margins in line with real-world data and standards applied to other power utilities.
According to Power Division, Nepra allowed KE several cost items and profit margins that are more generous than those granted to other utilities across the country. As a result, electricity bills for Karachi consumers are set to rise disproportionately, and public finances will bear an unnecessary burden. Total financial impact is in excess of Rs 300 billion of the intervention identified for review by GoP in KE MYT.
Power Minister, Sardar Awais Khan Leghari, in his tweet said that the power sector of Pakistan cannot afford any inefficiencies encouraged through tariff structure of any company, irrespective of whether it is private or public.
'Our review supports a sustainable and healthy environment in the distribution system of Pakistan in a responsible manner. Power Division hopes that the review process is carried out in a transparent and fair manner,' he added.
The key concerns in the Review Petition are as follows: Supply (fuel and fuel related costs): Nepra set KE's fuel-cost rate at Rs. 15.99/kWh, whereas other utilities buy power at lower rates from the national grid. This gap shifts about Rs. 28 billion (FY 2024) and Rs. 13 billion (FY 2025) of extra costs onto the federal budget rather than onto KE customers.
Recovery Loss Allowance: KE was permitted to include 'recovery losses' in its tariff even though its own records show it recovers more than the level Nepra allowed. No other utility received this special allowance. This adds roughly Rs. 36 billion in FY 2024 and Rs. 35 billion in FY 2025 to KE's revenue that consumers end up paying. Cumulative impact over a 7-year period is more than Rs 200 billion.
Working Capital Allowance: NEPRA permitted KE a 24 percent markup on working capital, a much higher percentage than in its previous tariff and higher than any other power distributor. This increased KE's allowable revenue by about Rs. 2.4 billion in FY 2024 and is projected to total around Rs. 15 billion over the control period of 7 years
Higher Allowed Distribution Loss: Nepra set KE's allowed loss at 13.90 percent, instead of the 13.46 percent KE had planned. Losses are electricity that is generated but not billed, due to leaks or theft, or kunda. Around 7 percent of all such leakages can be attributed to theft. By permitting a higher loss level, KE passes on an extra Rs. 3.1 billion in FY 2024, rising to about Rs. 21 billion over the control period.
'Law & Order' Margin: KE received a special 2 percent margin to offset security costs in Karachi—a perk not granted to any other utility, even those operating in equally or more volatile regions. Moreover, Law & Order in Karachi has improved considerably over the last few years, and thereby there exists no reason for such a margin. This margin adds approximately Rs. 14 billion in FY 2024 and up to Rs. 99 billion over the multi-year period to KE's revenue requirement.
Retention of 'Other Income': KE is allowed to keep money from fines imposed on its contractors, interest on bank deposits, and profits from side businesses. In effect, consumers have already paid for the assets that generate these incomes, so these funds should reduce KE's costs to customers, not pad its revenue. Effectively, it is being proposed that any such gain on assets that has been financed by consumers needs to be shared with consumers.
Transmission (Moving Power from Grid to KE): High transmission loss Target & skewed sharing; NEPRA allowed KE a 1.30 percent loss target, even though KE's historical losses are closer to 0.75 percent. KE keeps 75 percent of any savings if it performs better than 1.30 percent, passing only 25 percent of savings to consumers. This encourages inefficiency and keeps bills high. Financial impact is about Rs. 4 billion in FY 2024, rising to roughly Rs. 28 billion over the control period.
Excessive Return on Equity (RoE): KE was granted a 12 percent RoE in U.S. dollars (about 24.46 percent in rupee terms). Other national utilities (like NTDC) receive only 15 percent RoE in rupees. This difference costs consumers around Rs. 4 billion in FY 2024 and approximately Rs. 37 billion over the control period.
Distribution (delivering power to homes & businesses)- High distribution - RoE disparity: KE's distribution arm was allowed 14 percent RoE in U.S. dollars (about 29.68 percent in rupees). By comparison, other Discos like FESCO get only about 14.47 percent RoE in rupees. This adds roughly Rs. 3.7 billion in FY 2024 and Rs. 35.6 billion over the control period to KE's revenue.
Distribution Loss & Special Allowance: KE was granted an extra 2 percent 'law & order' margin on top of its allowed losses, even though Karachi's security situation is similar to or better than other regions. KE also keeps 25 percent of any savings if it performs better. These practices cost consumers about Rs. 14 billion in FY 2024 and up to Rs. 99 billion over the multi-year period.
Working Capital Markup: A 23.91 percent markup was approved for KE's distribution working capital—far higher than any other utility. This adds about Rs. 0.8 billion in FY 2024 and roughly Rs. 10 billion over the control period to KE's revenue requirement.
Generation (KE's Own Power Plants), Payments to Idle Power Plants (Take-or-Pay): Nepra approved capacity payments to several KE power plants (BQPS-I, KCCP, KGTPS, SGTPS) even though these plants will run at minimal or no output because KE sources cheaper power from the national grid. Consumers and the government pay for capacity that is not used. This costs about Rs. 12.7 billion in FY 2025 and roughly Rs. 82.5 billion over the multi-year period.
Favorable indexation &RoE for KE's plants: Under a hybrid 'take-or-pay' model, KE's plants keep full inflation adjustments (indexed to U.S. CPI or USD/PKR), while independent power producers (IPPs) do not receive equally generous terms. RoE for KE's plants was set at 17 percent (using PKR 168/USD), higher than typical IPP terms, costing Rs. 7 billion in FY 2024 and about Rs. 57.3 billion over the control period. This will result in overall higher bills for Karachi customers; KE's allowed costs, profit margins, and extra allowances will cause Karachi consumers' electricity bills to rise significantly compared to other regions.
Several KE cost items—especially the inflated fuel benchmark and payments to idle plants—are effectively covered by the government, stretching public finances.
The determinations are unfair treatment & efficiency discouraged: Granting KE advantages not given to other utilities creates a 'two-tier' system. This discourages KE from boosting efficiency, and it undermines transparent, consistent tariff-setting nationwide.
The Government maintains that all utilities should be treated equally. KE should not receive special cost or profit allowances unavailable to other power companies and tariffs must reflect actual costs and reasonable returns. Extra allowances for inefficiency and high profit rates must be removed to keep bills affordable.
For regulatory accountability Nepra should revise assumptions, benchmarks, and profit margins so they align with real performance data and the standards used for other utilities.
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