ISLAMABAD: K-Electric (KE), the country’s only privatised power utility, asserted on Thursday that its electricity generation is cheaper than the power produced in other parts of the country if nuclear and hydropower generation obtained from the national grid are excluded.
This was stated by KE’s Chief Financial Officer (CFO), Aamir Ghaziani, during a hearing on a motion for leave for review filed by the Karachi Chamber of Commerce and Industry (KCCI). The motion seeks to revisit a decision handed down by the National Electric Power Regulatory Authority (NEPRA) regarding KE’s petition for determining its supply tariff under the Multi-Year Tariff (MYT) regime for FY 2023-24 to FY 2029-30.
Ghaziani argued that international lenders require long-term investment plans before approving loans. If KE’s license period is shortened, it would hinder the company’s ability to execute such plans. Therefore, he requested NEPRA to maintain the seven-year control period, as was granted in the past.
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Addressing the issue of subsidies, Ghaziani clarified that KE does not receive operational subsidies. He said the term “subsidy” is a misnomer in this context—it is actually a tariff differential claim. Due to the government’s uniform tariff policy, the full cost-of-service tariff determined by the NEPRA is not passed on to consumers. The gap between the determined tariff and the approved uniform tariff is billed to the government.
He further highlighted that KE had originally been promised indigenous gas for its power plants. However, the company was later compelled to shift to re-gasified liquefied natural gas (RLNG), a more expensive fuel. This shift, he emphasized, was not under KE’s control.
“If nuclear and hydel power generations are excluded from the national grid, KE’s generation cost is actually lower, which reflects the company’s operational efficiency,” he claimed. “In terms of efficiency, we are better,” Ghaziani continued. “But due to the unavailability of cheaper resources like nuclear and hydel, our cost of service appears higher—something that is not within our control.”
Ghaziani also pointed out that review petitions are not maintainable and requested that NEPRA should not entertain them.
Commenting on law and order allowances, he stated that Karachi’s dynamics are unique, with over 900 slums in the city. KE continues to face challenges at 450 feeders where conditions have not improved.
“If these feeders were disconnected, KE’s transmission and distribution (T&D) losses would be around 8.5 percent across 1,700 feeders, while our recovery rate would rise to 99.5 percent, which is comparable to international standards,” he claimed.
On the other hand, KCCI representative Tanveer Barry criticized KE’s financial treatment under the tariff. He pointed out that KE is allowed a return on equity (RoE) in dollars, which, when converted to rupees, equates to 24.46 percent, while other distribution companies (Discos) are allowed only 15 percent.
Barry also questioned why KE is allowed to recover T&D losses of 6.15 percent in FY24 and 3.5 percent by FY30, while other Discos are not granted such allowances, despite some Discos having single-digit T&D losses, unlike KE’s double-digit figures.
He urged NEPRA to replace KE’s capacity charges from a “take-or-pay” model to a “take-and-pay” basis. Under this system, consumers would only pay for electricity actually supplied, not for unused capacity—helping to reduce costs. Barry further criticized KE’s 2 percent allowance for law and order costs, which is not permitted for other Discos. “Karachi’s law and order situation has significantly improved,” he noted.
He also highlighted that NEPRA allowed KE a 1.3% transmission loss allowance, whereas historical losses are only 0.75 percent. The financial impact of this overestimation would be Rs. 4 billion in FY24 and Rs. 28 billion over the control period.
Barry added that NEPRA allowed KE a 24 percent mark-up on working capital, which is significantly higher than both the previous year and the rates allowed for other Discos. He also criticised the recovery allowance given to KE, noting that their actual recoveries already exceed NEPRA’s targets.
Another intervener, Arif Bilwani gave arguments against the allowed control period and other allowances given by NEPRA, in its original determinations. He was of the view that benefits under various IPP policies cannot be allowed to KE, therefore, dollar-based return on equity cannot be allowed.
He further stated that instead of benchmarking recovery losses, which were at their lowest, higher losses have been allowed for the past seven years.
He said provision for doubtful debts has been allowed at a certain percentage of revenue. This will have a huge impact on the tariff as 1 percent of revenue now translates to Rs 6.5 billion.
Allowed capex, in hundreds of billions, on transmission, distribution, and supply at the request of KE, without taking into account the stagnant demand, over-ambitious consumer growth assumptions are unjustified. Capex approval should be linked to at least 80 percent asset utilisation to ensure cost efficiency and safeguard consumers from inflated tariffs.
The RoE should be benchmarked in Par Rupee based on PIB+ appropriate risk premium. FX debt servicing should be trued up based on actual SOFR & exchange rates. Demand forecasts ignoring the effects of roof solar & wind installations by domestic as well as industrial consumers result in inflated capacity expansions & excessive Capacity Payments.
Tariff revisions must be aligned annually with actual trends & technological shifts. “Always allowing a seven-year control period to KE and to no other Disco tantamount to undue favour. It must not be more than 4 years with a mid-year review,” he maintained.
Copyright Business Recorder, 2025