PRAC says revised tariff has intensified financial pressure on KE’s operations

KARACHI: The National Electric Power Regulatory Authority’s (NEPRA) decision to substantially cut K-Electric’s (KE) average tariff enhances consumer affordability, but it actually imposes immense financial strain on the utility, potentially jeopardizing long-term stability unless immediate structural reforms are implemented, says an analysis report issued by Policy Research and Advisory Council on Wednesday here.

According to details, NEPRA approved a Rs 7.6 per unit reduction in KE’s average tariff, revising it from Rs 39.97 to Rs 32.37 per kWh. This adjustment aligns KE’s pricing with the uniform national tariff policy, a move described by the Power Division as “pro-consumer” aimed at curbing inefficiencies.

Policy Research & Advisory Council (PRAC) analysis confirms that the revised tariff determination has imposed a substantial financial adjustment on KE. Applying the net material difference of Rs 6.00/kWh (after accounting for a Rs 1.6/kWh fuel reference adjustment) to KE’s FY24 total energy sales (15,025.11 GWh) results in an estimated annual revenue loss of Rs 90,180 million (Rs 90.1 billion).

The decision effectively removes the fiscal cushion that previously supported KE’s balance sheet, forcing the utility to absorb subsidy withdrawal impacts. This places considerable strain on KE’s liquidity, operational efficiency, and reinvestment capacity. PRAC analysis indicates that while immediate collapse or bankruptcy is unlikely, financial distress is real, and bankruptcy is possible over the medium term (2–5 years) if cost reductions or timely government subsidies do not occur. Furthermore, service failure, such as blackouts, remains a credible risk if investment in network maintenance is curtailed.

PRAC emphasizes that genuine tariff uniformity demands structural parity in power procurement. Currently, KE continues to bear the financial burden of its own costly generation fleet, whereas other Distribution Companies (DISCOs) procure electricity from the national grid at pooled rates.

KE’s internal generation costs are significantly higher than national grid purchases, largely due to inefficient, ageing plants and reliance on expensive thermal fuels (like furnace oil and re-gasified LNG). Data shows KE’s average cost for its own generation (42 percent share) was Rs 27/kWh in FY24, compared to the average cost of Rs 11/kWh for power purchased from the National Grid (58% share). This disparity (Rs 8–10 per unit pre-revision) is the core issue undermining sustainable uniformity.

To achieve equitable and sustainable outcomes without distorting KE’s cost structure, PRAC recommendations strongly advocate for structural reform through unbundling.

The recommended approach involves separating KE into three independent entities: KE-GENCO (Generation Company) to operate on its own commercial merit and sell power on merit order through the CPPA-G mechanism; KE-DISCO (Distribution Company) to procure power from the national grid at pooled CPPA-G rates, creating parity with other DISCOs and reducing end-consumer tariffs; and KE-TRANSCO (Transmission Company) to manage infrastructure and connectivity.

This separation is crucial to enhance transparency, enforce cost discipline, and align Karachi’s power supply model with national utilities. Other recommendations include ensuring timely disbursement under the Tariff Differential Subsidy (TDS) framework to sustain operational liquidity, implementing dynamic quarterly tariff indexation, and introducing performance-based efficiency incentives for loss reduction.

“The revised tariff has intensified financial pressure on KE’s operations,” noted PRAC. “Achieving genuine parity requires more than standardized pricing; it calls for fundamental unbundling of generation and distribution functions to ensure the finance burden is not unfairly placed on the distribution-side consumers”.

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