K-E seeks duty concessions on IPP pattern

SOHAIL SARFRAZ

ISLAMABAD: K-Electric (company) has approached Federal Board of Revenue (FBR) seeking customs duty concessions on the same pattern as available to Independent Power Producers (IPPs) to allow all power generation projects/IPPs connecting/supplying power to K-Electric to enjoy duty concessions.

Sources told Business Recorder that the company has also explained in detail the rationale behind proposed duty concessions on import of plant machinery and equipment for an IPP being built to supply power to K-Electric.

According to the letter of the K-Electric addressed to Ministry of Finance/FBR, the clarity be issued in respect of customs general order (CGO) No. 05/2015 and CGO No. 03/2015) to allow all power generation projects/IPPs connecting/supplying power to K-Electric to enjoy the same benefit of the customs duty concessions that are available to IPPs supplying to national grid and ultimately ensure that all stakeholders, particularly the end consumer, are treated fairly and given equal treatment.

The company said that it is essential and a pre-requisite to attract the investors (both local and foreign) to invest in constructing power plants in Karachi. It would be appreciated that government of Pakistan provides statuary concessions to the investors that pave way for a suitable and fertile environment for investment in Pakistan. Likewise, one of the most crucial investment areas is energy sector whose dominant off-shoot is Independent Power Producers (IPPs).

Considering the said context, sources said that in order to address the current demand-supply situation in Karachi, K-Electric has a comprehensive investment plan in place for all three of its core functions (ie generation, transmission, and distribution). On the generation front, part of the increased supply will come from KE's embedded generation projects and the remainder will be purchased from third party power projects.

The government has been allowing IPPs to avail duty concessions on import of plant machinery and equipment through customs general order (CGO) No.05/2015 read in conjunction with CGO No. 03/2015 but unfortunately due to non-clarify in the text of the order, duty concessions are difficult to avail for an IPP being built to supply power to K-Electric.

To provide a level playing field, concessions within the subject CGO that are already enjoyed by IPPs contracted with CPPA-G/NTDC should also be available to (i) IPPs who will enter into long-term Power Purchase Agreements (PPA) with KE and (ii) generation projects of KE. It needs to be placed on record that the ownership of KE has (and ought to have) nothing to do with the public function it serves and the services it provides. Furthermore, one needs to be cognisant that the power being generated and purchased by KE is not for its own consumption but for the citizens of Karachi and the other territories covered under KE's licence.

In this regard, the company has referred to section 17(2) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, which states that the National Transmission & Despatch Company (NTDC) "shall have the exclusive right to provide transmission service in the territory specified in such licence except the territory served by KESC." The intention of the legislature at the time this Act was passed is to bifurcate the responsibility of operations of national grid into two entities namely, KE (for Karachi and adjoining territories covered under KE's licence) and NTDC (for rest of Pakistan).

It is important to note that even before privatisation, KE operated and maintained its part of the national grid and even after privatisation, KE remains a public utility and needs to continue to serve a significant portion of the populace of Pakistan and must, therefore, be seen as an integral and intertwined part of the national gird.