Pakistan recommends reductions in Karachi power utility's proposed tariff

The Pakistani government has recommended several reductions in K-Electric's proposed multi-year tariff to lower electricity prices, according to an official document.

K-Electric's proposed tariff of PKR 44.69 per unit can be lowered to PKR 34.87 per unit through various adjustments, the document suggests.

The government has proposed lowering costs related to growth, changing the profit calculation from USD to PKR, adjusting debt terms, and changing how assets lose value over time.

Other changes involve using the current year's interest rate, adjusting working capital, and using the government's Central Power Purchasing Agency for half of the power generation. Additionally, switching 20% of K-Electric's power generation to a "take and pay" model, and changing retail margins could lower the tariff significantly.

The utility company has petitioned the National Electric Power Regulatory Authority (NEPRA) for a composite, base supply tariff of PKR 44.69 for the next multi-year tariff control period commencing FY24–FY30.

"Analysts believe the petitioned amount could be lowered by up to PKR 10 through addressing anomalies in the tariff assumptions and improving the terms of the determination," the document states.

K-Electric's investment plan projects a 2.9% compound annual growth rate (CAGR) for peak demand through the control period.

However, while overall electricity consumption (MWh) on the K-Electric network fell by 7.2% in FY2023. Peak demand (MW) over the past five years has grown at a CAGR of only 0.69%.

It is suggested that the debt costs allowed to K-Electric need to be actualized and any benefit to consumers should be reflected in the tariff.

The government believes there is no sound logic for setting the retail margin as a percentage of the total revenue of the supply business. Instead, the supply business should only recover costs until the supply function is legally separated from the rest of K-Electric.

Moreover, recovery ratio and other performance targets should be aligned with the highest watermark realized during the previous multi-year tariff. Using the high watermark of FY23 with a recovery ratio of 96.7% as a benchmark, the Recovery Loss Allowance reduces to PKR 1.41 per kWh (from PKR 2.88 per kWh).