Tariff differential: KE could be allowed to claim mark-up at KIBOR+3.5pc if…

ISLAMABAD: The government is likely to allow KE to claim interest or mark-up at KIBOR + 3.5 percent per annum, compounded semi-annually, on tariff differential, if NEPRA fails to determine Quarterly Tariff Adjustments (QTAs) as per NEPRA Act, well-informed sources in CPPA-G told Business Recorder.

K-Electric was privatized in 2005 as an integrated utility, after which Government of Pakistan (GoP) continued to supply power to KE under a Power Purchase Agreement (PPA) which expired in 2015.

Due to expiry of PPA, payables/receivables position between KE and GoP started to deteriorate as KE stopped payments from FY 2018-19 on the plea that these payments are to be settled against Tariff Differential Subsidy (TDS) receivable from GoP in accordance with clause 9.3(A) of the PPA.

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According to sources, a Task Force was constituted to resolve the issues of historic receivables and payables between KE and Government entities by the Prime Minister Office (PMO). After detailed negotiations and based on principles set out by the Task Force, Power Purchase Agency Agreement (PPAA) was signed between CPPA-G and KE on January 5, 2024.

Subsequently, Interconnection Agreement (ICA), TDS Agreement, Master Collection Agreement (MCA) and Mediation Agreements have also been signed by the stakeholders to resolve the issue going forward. These agreements aimed to resolve long pending issues between KE and GoP entities and to streamline regular payment by all the parties to avoid any addition in circular debt.

The Clause 2.9 of the TDS Agreement between GoP and KE states that “The GoP will issue necessary guidelines to NEPRA for processing the tariff determination within the time frame provided in NEPRA Act. Further, in case where NEPRA does not determine and issue the Quarterly Tariff Adjustment applicable to KE within fifteen days or KE Tariff Determination within four months from the date of admission of the relevant tariff petition filed by KE, interest or mark-up at KIBOR +3.5% per annum, compounded semi-annually, shall be applicable on the differential amount claimed under the Provisional Claims under section 2.1 (b) and Final Claims under section 2.1 (a) for each day of delay, as determined by NEPRA, which shall be pass through item in tariff and charged to the consumers of KE.

Provided further that this section shall not be applicable to the extent where Tariff Determination by NEPRA including Quarterly Tariff Adjustment is delayed due to litigation filed by KE and the Court has given a restraining order against such Tariff Determination or Quarterly Tariff Adjustment.“

The Power Division argues that since the Government is maintaining uniform tariff across the country, any cost chargeable to KE consumers over and above the Discos tariff has to be picked as TDS.

Keeping in view the higher cost of generation in KE, the over and above markup is also expected to become part of Government subsidies. Therefore, timely determination of KE base tariff as well as its periodic tariff adjustments by the Regulator is necessary in order to avoid the above financial implication.

After explaining the background, Power Division has sought ECC approval for the following policy guidelines to be issued to NEPRA: (i) the tariff determinations of KE shall be processed within the time frame provided in the NEPRA Act; (ii) in case when NEPRA does not determine and issue the Quarterly Tariff Adjustment applicable to KE within fifteen days or KE tariff determination within four months from the date of admission of the relevant tariff petition filed by KE, interest or mark-up at KIBOR + 3.5% per annum, compounded semi- annually, shall be applicable on the differential amount claimed under the provisional claims under section 2.1 (b) and final claims under section 2.1 (a) of the TDS Agreement between KE and GoP, for each day of delay, as determined by NEPRA, which shall be passed through item in tariff and charged to the consumers of KE.

The proposed guidelines shall not be applicable to the extent where tariff determination by NEPRA including Quarterly Tariff Adjustment is delayed due to litigation filed by KE and the Court has given a restraining order against such tariff determination or Quarterly Tariff Adjustment.

Copyright Business Recorder, 2024