28-05-2025
- Business
- Business Recorder
MYT regime from 2023-24 to FY 2029-30: Nepra approves KE's average power supply tariff at Rs39.97
ISLAMABAD: National Electric Power Regulatory Authority (NEPRA) has approved KE's average power supply tariff of Rs 39.97 per unit for FY 2023-24 under Multi Year Tariff (MYT) regime from 2023-24 to FY 2029-30.
This includes power purchase excluding transmission cost of Rs 31.96 per unit, transmission cost of Rs 2.86 per unit, distribution cost Rs 3.31 per unit, supply margin Rs 2.28 per unit and Prior Year Adjustment negative Rs 0.44 per unit.
According to NEPRA, since the impact of any such determination is to be made part of the consumer end tariff, therefore, the Authority, conducted a public hearing on June 27, 2024.
MYT regime: Nepra unveils KE's 7-year D&T tariffs
The power utility company's total revenue requirement is estimated to be Rs 606.920 billion, for FY 2023-24, of which supply margin will be Rs 34.681 billion, O&M cost Rs 5.91 billion, working capital negative Rs 1.244 billion, recovery loss, Rs 36.253 billion, gross margin Rs 40.921 billion, other income negative Rs 6.240 billion, net margin Rs 34.681 billion and prior year adjustment negative Rs 6.690 billion.
The Authority also considering the fact that FY 2023-24 has already lapsed and FY 2024-25 is almost 11 months gone, also obtained ICE's actual recovery ratios for the FY 2023-24 and FY 2024-25. As submitted by KE its actual recovery for the FY 2023-24 remained at 91.50%, whereas FY 2024-25 is expected to close at 90.50%.
The financial impact of under recovery of 8.50% for FY 2023-24 and 9.50% for FY 2024-25, as reported by KE, is around Rs.40 billion and Rs.57 billion respectively.
The Authority noted that return allowed to KE for its distribution function is around Rs.21.6 billion, meaning thereby that effectively KE would be incurring losses for the first 02 years of MYT, if no recovery loss is allowed to KE. This may compromise the financial viability of the company, which is neither in the interest of the consumers nor power system as whole.
According to NEPRA, international precedents also suggest that 100% billing recovery is generally not mandated. Instead, regulators allow for reasonable bad debt provisions and encourage utilities to improve collection efficiency through performance targets and incentives. While high recovery rates are desirable, regulators balance this with the realities of consumer behaviour, economic conditions, and operational challenges, allowing for flexibility in recovery targets.
Since KE is not financially supported by the GoP, unlike XWDISCOs, and non-provision of recovery gap allowance will significantly impact KE's ability to achieve future targets and execute its investments plans, therefore, keeping in view the ground realities and socioeconomic environment in which KE operates, KE has requested the Authority that the tariff should be based on the allowed recovery loss trajectory and KE should be compensated for legitimate costs related to recovery loss.
In view of the environment in which KE operates and the challenges that it faces, KE requested NEPRA to have a realistic assessment of the benchmarks.
In view thereof, KE, for the purpose of calculation of base tariff, requested that Recovery loss component be included based on amounts actually billed to consumers (including taxes paid on billing basis) and year on year recovery loss as a percentage for the next control period of FY 2024 to FY 2030.
The Authority also noted that in case of XWDISCOs, although no recovery loss has been allowed, however, it is also a fact that the Federal Government under Section 31(8) of NIEPRA Act has the power to levy surcharges, to offset the inefficiencies of XWDISCOs arising from high losses and under-recoveries. However, no such option is available to K-Electric as it can only charge the regulated tariff.
KE further submitted that recovery loss percentage being requested notionally assumes 100% recovery from Public Sector Consumers. Although there are delays in recovery from PSC consumers coupled with delays in release of Tariff Differential Subsidy (TDS) by the Government, the same is not being requested as it is separately being taken up with Government entities and departments.
In case, the agreements with Government to streamline payment modalities do not materialize, KE reserves the right to request NEPRA for adequate compensation due to non-payment/delay in payments by Government entities
In view of the case discussion, and to ensure sufficient liquidity in the power market, and to align the collection targets with current market realities, the Authority has decided to allow recovery loss to K-Electric as per the following targets for the Y1 control period from FY 2023- 24 to FY 2029-30; (i) 93.25 per cent in 2023-24, 93.60 per cent in 2024-25, 94.40 per cent in 2025-26, 95.19 per cent in 2026-27, 95.70 per cent in 2027-28, 90.10 per cent in 2028-29 and 96.50 per cent in 2029-30.
Regarding mechanism to allow recovery of bad debts, the Authority observed that the relevant provisions of the NE Policy and NE Plan regarding the targets for collections and recovery of bad debts are as follows: NE Policy clause 5.3.2 stipulates that to 'ensure and put in place efficient tariff structures for sufficient liquidity in the power market, the target for losses and collections shall be revisited by the Regulator, in order to align the same with the current market realities. These targets shall be reflected in the determinations of the Regulator.
Moreover, timely recovery of bad debt that is prudent shall be allowed by the Regulator with the incorporation of facilitative provisions in the regulatory framework as per industry practices and procedures.'
Copyright Business Recorder, 2025
