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Business Recorder
2 days ago
- Business
- Business Recorder
Nepra's MYT decision: a step in the right direction
EDITORIAL: After a prolonged delay, the regulator — National Electric Power Regulatory Authority (Nepra) — has finally approved the Multi-Year Tariff (MYT) for the only private entity operating in the power utility sector. There has been a considerable outcry in the media following the Power Minister's criticism of Nepra's decision to allow KE (Karachi Electric) to incorporate recovery losses. But before delving into the controversy, it must be emphasised that this is a step in the right direction, as it will unlock KE's valuation for its shareholders. It will help resolve disputes among existing shareholders and incentivize much-needed investment in the fully integrated energy-utility company. This, in turn, will bode well for the sustainability of the power supply to Karachi, the country's economic hub and a city of teeming millions. Moreover, the move sets the stage for the privatisation of other distribution companies (Discos) — a long-awaited reform in the power sector's transmission and distribution segments. Until now, reform efforts have largely focused on the generation side. Unfortunately, the debate primarily concerns KE receiving compensation for recovery losses. On paper, KE's recovery losses appear higher than those of a few other Discos. Ironically, in the so-called 'better-performing' Discos, recovery during 8MFY25 exceeds 100 percent for consumers using 0–200 units but drops to the 80s for higher-slab consumers. The pattern for KE is similar. However, its overall recovery rates are lower — mid-80s for the 0 — 200-unit slab and mid-70s for higher slabs. These figures point to overbilling by other Discos and lower collection efficiency by KE. Nepra has allowed KE to pass on these costs to different consumers. However, shifting the burden to others is unfair to honest consumers. Yet, other Discos have been doing the same — without any transparency. The PHL surcharge (Rs3.23/unit), paid by all electricity consumers nationwide, including KE's, represents a legacy cost linked to historical losses by state-owned Discos. These public entities are not held financially accountable for their losses; the costs are absorbed into the infamous circular debt. In contrast, KE's shareholders bear the losses and are justified in seeking cost coverage. The way forward should focus on reducing KE's losses and ending overbilling by others. Media scrutiny should push KE to improve its recovery rates. Nonetheless, KE's AT&C (Aggregate Technical and Commercial) losses, as allowed by Nepra, have declined from 43.2 percent in 2009 to 20.3 percent today, with a target of 15.3 percent by 2030. The power division's criticism is a grievance against KE's current management. Nepra's determination came after consultations with all stakeholders, including the power division. If there were objections, they should have been raised during that process. It is important to note that Karachi is a complex city, and the private operator has halved its losses over the past 15 years. Had other Discos achieved similar results, the savings would have been substantial. Nepra's allowance for losses is set to decline over the next seven years — and the same standard should be applied to other Discos as well. Achieving this, however, requires investment and competent management. Such outcomes are unlikely without corporatisation and privatisation. To move forward, Discos must be held accountable for their losses and rewarded for improved performance. They need their MYTs and access to private investment — both of which would benefit Pakistan's broader, evolving power sector. KE's MYT approval is a step in this direction. Copyright Business Recorder, 2025
Express Tribune
04-04-2025
- Business
- Express Tribune
Govt nears Rs1.34tr loan deal
Minister for Power Sardar Awais Khan Leghari announced on Friday that negotiations with banks for loans amounting to Rs1.34 trillion were in the final stages to reduce the power sector's circular debt, which currently stands at Rs2.4 trillion. Speaking to the media, the minister said that once banks submit their term sheets, agreements would be finalised, which would help reduce Rs300-335 billion in circular debt. The loans will be repaid through the debt servicing surcharge (DSS) of Rs3.23 per unit, with both the current and future governments continuing repayments through this mechanism. The minister also hinted at a further potential reduction in electricity tariffs during the upcoming tariff rebasing in June 2025, but cautioned that fluctuations in fuel prices would continue to be passed on to consumers through the fuel cost adjustment (FCA). "If interest rates increase, or the rupee devalues, it will impact the quarterly tariff adjustment (QTA) as it is subject to fluctuations. Similarly, if dams dry up and hydel generation decreases, or if expensive fuel needs to be purchased or international energy prices rise, these changes will be reflected in the FCA," he explained. However, he assured that the current reduction in electricity prices is based on solid and sustainable grounds. He noted that the termination of independent power producers (IPPs) contracts and the imposition of an additional Rs10 per liter tax on petroleum products have contributed to an approximate Rs4 reduction in the price per unit, a decrease that is expected to be sustainable. He further stressed that the petroleum levy (PL) would not be removed. In response to questions about consumer confusion regarding the impact of price reductions on their bills, the minister clarified that the overall reduction in tariff would amount to Rs 6 per unit, plus a tax of Rs1.50 per unit. This would result in a total reduction of Rs7.44 for domestic consumers and Rs7.69 for industrial consumers. Moreover, savings of Rs2 per unit would be realised from the renegotiation of IPP contracts. The minister also shared that talks with China regarding the reprofiling of debts and the conversion to local coal were progressing smoothly. He indicated that the tariff rebasing in June 2025 could bring further reductions due to the successful implementation of ongoing reforms. "Our reforms are focused on creating a sustainable, long-term reduction mechanism based on efficiency," he added. He further explained that if the tariff reductions had been solely based on renegotiated IPP contracts, the International Monetary Fund (IMF) would not have supported such significant price cuts. According to Leghari, the IMF had stressed the importance of continuous reform processes, which, once shared and explained, helped build confidence in the power sector's path toward sustainability. The minister also revealed that the centralised trading of bulk power market (CTBCM) would be operationalised by the end of the current year. Initially, the government plans to start with a bilateral trade of 800-1000 MW of electricity. "We are optimistic that if our reform process continues at the same pace, we will see significant downward pressure on electricity prices," he said.
