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Business Recorder
6 days ago
- Business
- Business Recorder
Discontinuation of ED collection opposed: KP govt urges Power Division to reconsider decision
ISLAMABAD: The federal government's plan to discontinue the collection of Electricity Duty (ED) has hit another roadblock as the Khyber Pakhtunkhwa (KP) government has formally opposed the move, following the earlier objection by the Sindh government. The KP government has urged the Power Division to reconsider the decision in the interest of constitutional propriety, cooperative federalism, and fiscal stability. In response to a letter dated June 30, 2025, from Federal Minister for Power Sardar Awais Khan Leghari, KP Chief Minister Ali Amin Gandapur conveyed strong reservations regarding the unilateral discontinuation of ED collection by the Power Division through Distribution Companies (Discos), without prior notice or consultation. Leghari urges chief ministers to scrap electricity duty from bills starting July Gandapur highlighted the constitutional and legal basis for the imposition of Electricity Duty: (i) under Article 157(2)(b) of the Constitution of Pakistan (1973), provincial governments are empowered to levy taxes on electricity consumption within their jurisdictions ;(ii) according to Section 13(2) of the KP Finance Act, 1964, every distribution licensee is obligated to collect and remit Electricity Duty to the provincial government. This duty constitutes a first charge on the amount recoverable for energy supplied, thereby making it a debt owed to the KP government; and (iii) Rule 5(1) of the West Pakistan Electricity Duty Rules, 1964 requires Discos to list Electricity Duty as a separate item on electricity bills and recover it alongside energy charges. He further argued that under Section 38 of the NEPRA Act (1997), provinces are authorized to monitor Discos' compliance regarding billing, metering, and theft cases. The Act also affirms the provincial government's jurisdiction over electricity consumption charges based on the principle of subsidiarity. Gandapur pointed out that under Section 36(2) of the State-Owned Enterprises (SoE) Act, 2023, all previous orders, regulations, and instruments remain in force unless repealed. Thus, the KP Finance Act, 1964 and the Electricity Duty Rules, 1964 continue to hold legal standing. He also referenced Articles 268 and 279 of the Constitution, which provide continuity to existing laws, including taxation statutes, until altered by the appropriate legislature. These protections, he argued, reinforce the provinces' legal right to collect ED. The chief minister emphasized that under Article 154(1) of the Constitution, the Council of Common Interests (CCI) is the designated body to formulate and regulate policies related to electricity and oversee related institutions. Therefore, any decision affecting the power sector must be considered and approved by the CCI, with mandatory consultation from the provinces—a process that was not followed in this case. He noted that three distribution companies—PESCO, HAZECO, and TESCO—operate within KP's jurisdiction and are legally bound to comply with provincial laws, under the principle of lex situs (the law of the place where the property is situated). The ED, he added, must be collected through the billing system as mandated by law, and there exists no alternate mechanism for its recovery. 'The Power Division's unilateral administrative decision, without CCI's approval or consultation with the KP government, is unconstitutional and legally void,' Gandapur asserted. 'This measure may unnecessarily fuel federal-provincial tensions.' The KP government maintains that ED is not a general tax that can be collected through alternative channels, but rather a sector-specific charge that, by law, must be recovered via electricity bills issued by Discos. The provincial government has sought immediate reconsideration of the decision of Power Division, expressing readiness for constructive dialogue, provided the constitutional and legal frameworks are upheld. Earlier, Sindh Chief Minister Murad Ali Shah also criticized the federal government, accusing Islamabad of imposing a unilateral decision and advising it to 'put its own house in order' before dictating terms to the provinces. Currently, Discos collect an estimated Rs 60 billion annually as Electricity Duty on behalf of the provinces. While the federal government claims the move is intended to provide relief to consumers, provincial governments argue it undermines their constitutional right. Power Minister Sardar Awais Leghari has stated that he will present the collective responses of all provinces to the prime minister before deciding on a future course of action. Copyright Business Recorder, 2025
Business Recorder
16-07-2025
- Business
- Business Recorder
Industrial power tariff: Power Div, APTMA at odds over cross-subsidy calculation
ISLAMABAD: The Power Division and the All Pakistan Textile Mills Association (APTMA) appear to be at odds over the actual volume of cross subsidy embedded in industrial power tariffs, with APTMA claiming that the burden is nearly twice what the Power Division reports. The dispute emerged at a time when the Power Division claims it is engaging with the industry to further reduce cross subsidies to ease the financial strain on industrial consumers. The Division had earlier announced a reduction of Rs 174 billion in cross subsidies. 'We do not agree with the Power Division's calculation of Rs 74 billion in cross subsidies in industrial power tariffs,' stated Shahid Sattar, Secretary General of APTMA, in a letter addressed to Power Minister Sardar Awais Khan Leghari. 'According to our analysis based on Nepra's determination of consumer-end tariffs for FY26, the actual cross subsidy amounts to at least Rs 137 billion.' PD uncertain on power tariff changes from July 1 APTMA defines cross subsidy as the difference between a consumer's cost of service, which includes generation, transmission, distribution, and associated margins, and the effective price charged by the government of Pakistan. Under Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, Nepra is mandated to determine a uniform tariff for public sector licensees in the interest of consumers. The National Electricity Policy 2021 also allows the government to propose uniform tariffs across consumer categories based on socioeconomic objectives, budgetary targets, and regulator recommendations. According to APTMA, power tariff determination results in two sets of tariffs: one determined by Nepra, which reflects the true cost of service across consumer categories, and another proposed by the government, which applies cross subsidies. Nepra's tables show that residential users consuming up to 300 units and non-ToU agricultural consumers are charged below-cost tariffs. In contrast, other consumer categories, including industry, pay higher-than-cost tariffs to cover the resulting revenue gap—effectively bearing the cross subsidy burden. 'Our calculations, using category-wise consumption data from the FY25 determination (due to lack of FY26 data), indicate a cross subsidy of nearly Rs 140 billion in industrial power tariffs. This figure may rise by 2–3% based on CPPA-G's projected demand growth for FY26,' APTMA noted. APTMA suggests that the Power Division's Rs 74 billion figure likely uses an average system-wide benchmark—such as the FY26 Power Purchase Price (PPP) of Rs 25.98/kWh—instead of Nepra's cost-reflective tariffs by category. Based on this method, APTMA acknowledges the cross subsidy may drop to around Rs 85 billion, closer to the government's estimate. However, APTMA insists the cross subsidy should be calculated against actual cost of service per consumer category, not a generalised average. 'If the goal is to deliver cost-reflective and competitive power tariffs, it's critical that government and stakeholders align on definitions and calculation methodologies.' APTMA reiterated its long-standing demand for a regionally competitive power tariff of 9 cents/kWh. This demand, it says, is supported not only by regional benchmarks (5–9 cents/kWh) but also by domestic cost-of-service studies that show tariffs for 83–84% of Pakistani consumers' hover around 9 cents/kWh. Nepra's own determination supports this, with industrial base rates set at Rs 21.65/kWh (off-peak) and Rs 30.76/kWh (peak) for July 2025, equating to roughly 9.5 cents/kWh before applying cross subsidies. On the issue of wheeling charges, APTMA argues that the current rate of about 4.5 cents/kWh undermines the viability of the Competitive Trading Bilateral Contract Market (CTBCM) for renewable energy. For a textile unit operating three shifts, only 20% of its energy demand can be met at a viable rate (~8 cents/kWh) through wheeling. The remainder must be sourced from the grid, where marginal costs—particularly from RLNG plants—total around Rs 37.79/kWh (or 13.4 cents/kWh), resulting in an average energy cost of 12.32 cents/kWh, significantly above the industry's target. APTMA emphasised the need for tariff predictability, which is crucial for long-term business planning. Volatile rates pose major challenges, particularly for exporters. The Association urged the Power Minister to reconsider wheeling charges and allow hybrid consumers (those using both CTBCM and grid power) to retain access to the industrial tariff, enhancing predictability and competitiveness. APTMA also acknowledged the government's new incremental consumption package, calling it a 'substantial improvement' over previous schemes, which were complex and impractical for industry adoption. 'We appreciate that industry feedback is now being actively considered in policy design,' the Association added. On the topic of industrial Time of Use (ToU) tariff reform, APTMA said it has recently engaged with Abid Lodhi and Naveed Qaiser at PPMC. 'They outlined several system constraints, and we are now developing a proposal for a more flexible ToU tariff structure, which we plan to submit in the coming weeks,' said Sattar. Copyright Business Recorder, 2025
Business Recorder
03-06-2025
- Business
- Business Recorder
Nepra's KE MYT decision: Power Div. submits review motion
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. Copyright Business Recorder, 2025
Business Recorder
03-06-2025
- Business
- Business Recorder
Nepra's KE MYT decision: PD submits review motion
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. Copyright Business Recorder, 2025
Business Recorder
29-05-2025
- Business
- Business Recorder
Nepra's decisions on KE tariffs: Power Div. flags potential consumers harm, urges revision
ISLAMABAD: The Power Division on Wednesday announced plans to file reviews of the National Electric Power Regulatory Authority's recent decisions regarding K-Electric tariffs, warning that parts of the rulings could have negative consequences for consumers if not revised. Power Minister Sardar Awais Khan Leghari took to X (formerly Twitter) to express concerns about Nepra's decisions announced during the last few days that have drawn strong reactions from the ministry. The minister's remarks came at a time when Nepra, which by law is the power sector regulator, feels helpless in implementing its directions issued to Power Division and its affiliated organizations. NEPRA approves K-Electric's MYT for supply segment Last month, during a public hearing on IEECO's Multi-Year Tariff petition , Member (Tech) Rafique Ahmad Shaikh, asked Power Division to get rid of Chief Executive Officer (CEO), for poor performance. Similar positions were seen in other Discos and NTDC, which irritated the Authority during public hearings. 'The Ministry has serious concerns regarding Nepra's multiple determinations related to K-Electric's licenses for generation, transmission, distribution, and supply. These decisions also impact the investment plan for the upcoming multi-year tariff period,' said the Power Minister. Leghari emphasized that the rulings have significant long-term implications for consumer tariffs and the Federal Government's subsidy framework under the uniform tariff regime. 'The ministry is preparing to seek a review of the recent determinations concerning transmission, distribution, and supply. Additionally, the reconsideration of an earlier generation tariff decision — submitted back in December 2024—still awaits Nepra's attention. This delay poses serious financial risks for the power sector and its associated subsidies,' he added. The minister further cautioned that unresolved issues within Nepra's rulings could negatively affect consumers and the broader regulatory environment, potentially deterring private sector investment in the distribution sector. According to a power sector expert, Nepra's annual recovery loss allowance of Rs 40 billion granted to K-Electric—totaling over Rs 320 billion across seven years. Another insider sarcastically stated that 'Minister seems super happy on Nepra's determinations'. Another expert stated that real challenge is rampant power theft and non-recovery of electricity bills in the country. On the governance side, however, the proposed bill to classify electricity theft as a criminal offense was recently rejected by lawmakers. As a result, Discos are left with no option but to recover their legitimate business costs from paying consumers — a practice observed across the country. Power Division wants to review Nepra's recent tariff determinations for K-Electric, consumers across Pakistan, including those in Karachi, already burdened with the PHL surcharge due to the continued non-recovery of dues from other government-owned Discos. The Nepra's determinations on KE Multi-Year Tariff petitions are actually removing such disparities currently present in Pakistan's power sector. Also, unlike KE previous multiyear tariff for 2017-23, there is a periodic review mechanism built in the tariff for the period 2023-30. Copyright Business Recorder, 2025
