MYT impact estimated at over Rs300b
The Power Division has urged Nepra to align KE's tariff structure with national standards to ensure fairness, transparency and affordability. photo: file
The Power Division has challenged the regulator's decision on granting a multiyear tariff (MYT) to K-Electric (KE), alleging that it will allow the company to collect over Rs300 billion from consumers.
"The total financial impact is in excess of Rs300 billion of the interventions identified for review by the government of Pakistan in the KE MYT," the division said in a review petition submitted to the National Electric Power Regulatory Authority (Nepra).
It has asked Nepra to revisit its recent approval of electricity rates for KE, Karachi's main power supplier. KE's new tariffs come into effect from financial year 2024-25 and will run through FY30.
The government believes that Nepra has allowed several cost items and profit margins to KE that are higher or more favourable than for any other utility in Pakistan, resulting in unnecessarily high bills for consumers and extra pressure on public finances.
The Power Division has raised serious concerns over the preferential treatment granted to KE. Nepra set KE's fuel cost benchmark at Rs15.99 per kilowatt-hour (kWh), significantly higher than the rates paid by other utilities purchasing power from the national grid. This discrepancy adds Rs28 billion in FY24 and Rs13 billion in FY25 to the federal budget, shielding KE customers from these costs.
KE also received a "recovery loss allowance," despite its actual recoveries exceeding the threshold set by Nepra. No other utility enjoys this privilege, which has generated Rs36 billion in FY24 and Rs35 billion in FY25 for KE, amounting to over Rs200 billion in seven years.
Furthermore, Nepra allowed KE a 24% markup on working capital – higher than any other utility – boosting revenue by Rs2.4 billion in FY24 and Rs15 billion over seven years. Additionally, a higher distribution loss target of 13.90% (vs KE's own 13.46%) was set, passing Rs3.1 billion in FY24 and Rs21 billion over the seven-year period on to consumers. A unique 2% "law and order" margin was granted to KE, despite an improved security situation. This adds Rs14 billion in FY24 and Rs99 billion over seven years. KE was also allowed to retain "other income" from fines and investments, which should have offset customer costs.
Transmission losses were overestimated at 1.30% (vs actual around 0.75%), and KE keeps 75% of savings, creating inefficiency and costing Rs4 billion in FY24 and Rs28 billion over the seven-year period.
Excessive returns were also permitted. KE enjoys a 12% return on equity (RoE) in US dollar (around 24.46% in Pakistani rupee) on generation, compared to National Transmission and Despatch Company's (NTDC) 15% in rupees, and 14% RoE in US dollar (around 29.68% in PKR) on distribution, far exceeding the 14.47% RoE in rupees for others like the Faisalabad Electric Supply Company (Fesco).
Idle KE power plants still receive capacity payments, costing Rs12.7 billion in FY25 and Rs82.5 billion overall. Generous inflation indexation and a 17% RoE for these plants further strain finances.
The Power Division urged Nepra to align KE's tariff structure with national standards to ensure fairness, transparency and affordability, stressing the need to eliminate unjustified allowances and ensure equal treatment for all utilities.
KE eyes DISCO acquisitions
K-Electric held a corporate analyst briefing on Monday to provide insights into its recently approved tariffs and operational updates. The company expressed openness to acquiring other DISCOs (distribution companies), should the privatisation process move forward, according to Arif Habib Limited.
Its management highlighted that KE's total generation capacity currently stands at 2,397 megawatts (MW) from internal sources, while it procures over 1,600 MW externally. With the anticipated completion of NTDC interconnection projects, an additional 400 MW is expected to be integrated into its grid.
The utility's robust transmission network now comprises 7,095 MVAs capacity, 74 grid stations and 1,394 km of lines, while its distribution infrastructure includes 8,964 MVAs capacity, 2,112 feeders and over 31,000 pole-mounted transformers (PMTs).
Since its privatisation in 2005, KE has added 1,957 MW to its generation capacity, improved efficiency from 30% to nearly 46%, doubled transmission capacity and cut transmission and distribution (T&D) losses from 34.2% to 16%.
The utility estimates a cumulative saving of Rs900 billion for the government and consumers, alongside annual fiscal savings of Rs164 billion due to lower aggregate technical and commercial (AT&C) losses. Nepra has approved a multi-year tariff (MYT) structure of Rs39.98/kWh for KE, lower than the utility's request for Rs44/kWh. Return on equity (RoE) has been set at 14% for generation/distribution and 12% for transmission, with a 70:30 D/E ratio. The cost of local and foreign debt has been capped at Karachi Interbank Offered Rate (Kibor) + 2% and Secured Overnight Financing Rate (SOFR) + 4.5%, respectively.
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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. Copyright Business Recorder, 2025
