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ISLAMABAD: Karachi Electric (KE) has reportedly brushed aside allegations leveled by National Electric Power Regulatory Authority(Nepra) in its show cause notice and asked for quashing it in the interest of justice, well-informed sources in Nepra told Business Recorder.

On July 24, Nepra had issued a show cause Notice to the country's only privatized power sector entity, for allegedly bad performance, breach of contract and non-cooperation with its investigation team. The regulator had threatened to cancel KE's licence.

The sources said KE has submitted a very detailed response to the show cause notice issued by Nepra, which says that the power utility's BQPS 1 has a total storage capacity of 110,400 MT, as mentioned in the generation licence. BQPS 1 has a total of six storage tanks having total gross storage of around 110,400 MT, however, out of six, one tank 25,000 m3 is in custody of PSO whereas two tanks each of 10,000 m3 are in custody of BYCO. The remaining three tanks with gross storage of around 69,000 MT are used by KE and after deduction of dead stock of around 2,550 MT, usually referred to as the unpumpable stock, which cannot be utilized or pumped for usage in plant, the total net useable capacity, which KE utilizes is around 61,350 MT.

Commenting on inventory, the power utility has stated that while storage capacity is specified under generation licence, there are no directives mentioned in KE's generation licence or any other document which require KE to maintain a certain level of inventory at all times. However, KE follows Economic Merit Order model keeping in view direct pipeline from PSO and ensures maintenance of optimum stock levels, which are in line with its historical trend and have been considered by the Authority in KE's Multi-Year Tariff (MYT) determination of July 5, 2018. Moreover, furnace oil is a commercial product, which is readily available, hence, the requirement to maintain such high level of inventory has been considered not cost effective. Nepra during the proceedings for FCA and Quarterly Tariff Adjustment duly verifies all the data and information, which includes but is not limited to fuel stock movement and inventory position and no such directions were received by KE to maintain a certain level of inventory.

Accordingly, KE followed the historical trend even in FY 2019 for ascertaining the required stock levels. KE used to maintain furnace oil stock of less than 4,000 MT prior to FY 2015 which was gradually enhanced, such that KE started maintaining opening stock of 15,000 MT of furnace oil stock during the peak summer month of June.

KE is of the view that the issue of furnace oil shortage occurred for the first time in its history and that also on countrywide basis, not just confined to furnace oil, under unique circumstances of Covid-19, which itself is unique phenomenon of once in a life time that no one could have imagined.

The power utility, in its response has also submitted that in case the Authority requires KE to maintain the furnace oil stock as per actual net capacity of around 61,000 MT, then the Authority should confirm it, as the power utility would be requesting adequate compensation in working capital component of tariff so that it can proceed in an informed manner and maintain the required furnace oil stock levels as directed by the Authority.

In response to another observation of Nepra, the power utility said that net capacity of 1107 as mentioned in its generation licence and net capacity of 1104 MW considered by the Authority under KE's MTY determination are nameplate capacities with factor deducted for the auxiliary consumption only at mean site conditions and that the same do not account for any reduction in dispatch due to technical considerations such as normal duration based on life of plants and lower capacity due to heat and high temperature and availability of fuel. Further, independent third-party test of the maximum capacity has also been done in the presence of Nepra's officials and the third reports have been submitted to the Authority.

The maximum available capacity of BQPS 1 remained 10,30 MW as ambient site conditions during the period from June 21, 2020 till July 10, 2020, however, average utilization of BQPS 1 was lower i.e. 916 MW, which was on account of furnace oil constraints.

BQPS -1 is a legacy power plant and due to the investment made by KE the number of outages on BQPS1 was constrained such that the impact of outages was 9,124 MWh or 19 MW - 2 per cent of BQPS-1 available capacity during the affected period. Accordingly, BQPS-1 operated on a reliability factor of around 97 per cent during the affected period and there was no outages on the other generation plants, which demonstrates the benefit of the investments made by the KE.

The power utility has further submitted that delay in the finalization of tariff caused consequential delays in actualization of planned projects of KE which was highlighted multiple times before the Authority during the tariff proceedings by KE as well as other stakeholders for Authority's consideration.

Further, to Government of Pakistan in the greater public interest and to ensure KE's sustainability and further investment in infrastructure to meet the primary obligation of providing smooth and reliable supply to its consumers filed a reconsideration request on Authority's decision of October 9, 2017 against the review motion filed by KE, which was subsequently decided by the Authority through its MYT determination of July 5, 2018, hence, MYT determination of October 9, 2017 was not made effective.

The response further says that project timelines were based on initial forecasts/ estimates. As per the timelines assumed in tariff, the first unit of the 900 MW BQPS III project was due to come online in July 2018,whereas the MYT reconsideration decision was issued on July 5, 2018 itself. Accordingly, the assumption of commercial operations being relied upon by the Authority is not practical and requires revision. Financial close of the project is only possible after notification of tariff.

The Authority has been requested to give due consideration to the fact that KE's MYT was determined in July 2018, which was notified in May 2019 and with the expected online date of its first unit in summary of 2021, the planned 900 MW project is well within the timelines allowed to other IPPs.

On gas supply agreement, KE is of the view that Gas Supply Agreement(GSA) is a bilateral agreement, which is executed by the parties involved. Accordingly, the onus of non-execution of GSA cannot be solely attributed to KE without appreciating the underlying issues. KE is fully committed to execution the GSA, however, it is delayed on part of SSGC .

The power utility has also commented on the issue of fuel supply in recent months due to which its plants could not operate on optimum capacity. It has also mentioned the investment it made into transmission and distribution system.

KE has further stated that it took appropriate safety measures to protect the lives of people of Karachi in the light of directions of the Authority.

The sources said, Nepra would review the answers of KE, after which future course of action would be initiated.

On August 11, 2020, Chairman Nepra, Tauseef. H. Farooqi, informed the Supreme Court during a hearing against KE, that the regulator has the power to impose a fine of Rs 20 million on the power utility.

Copyright Business Recorder, 2020