NEPRA approves multi-year transmission and distribution tariffs for KE
Staff Report:
Islamabad: The National Electric Power Regulatory Authority (NEPRA) has completed its determinations on KE’s transmission and distribution tariff petitions for the control period FY 2023–24 to FY 2029–30.
These decisions come following detailed public hearings, technical evaluations, and feedback from a broad range of stakeholders including industry representatives, consumer groups, and public forums. The authority had earlier issued its decision for KE’s generation tariff in October 2024.
These tariff determinations do not directly impact end-consumer rates, which are governed under the uniform tariff policy notified by the Federal Government.
As Karachi’s sole vertically integrated utility, KE had submitted tariff petitions for generation, distribution, transmission, and supply businesses following the expiry of its previous Multi-Year Tariff (MYT) in June 2023. The new MYT spans seven years and is designed to provide long-term financial visibility necessary for capital investment and operational stability.
KE proposed a distribution tariff for FY 2023–24, covering components such as Return on Rate Base (RoRB), Operations and Maintenance (O&M), amortization, and working capital. NEPRA evaluated several critical factors, including KE’s request for a USD-pegged Return on Equity (RoE) at 16.67%, indexing mechanisms for losses and capital costs, and one-time adjustments tied to the previous MYT period (2017–23). An RoE of 14% has been allowed in principle with indexation.
Industry representatives called for shorter control periods with performance-linked penalties. KE had defended the mechanism as essential to attract long-term foreign investment. Operational and Maintenance (O&M) costs were approved with CPI-linked increases, and NEPRA found KE’s O&M performance efficient compared to other distribution companies (DISCOs). The Authority also opted not to apply an X-factor efficiency deduction as KE has not asked for any incremental O&M owing to proposed capacity enhancements and increase in consumer base.nepra asaan approach
The Authority did not allow KE’s request to adjust distribution loss targets based on changes in its sales mix across voltage levels. The regulator maintained that performance benchmarks must be uniform across the sector, and KE’s approved loss targets would remain unchanged despite its argument that shifting sales mix dynamics warrant reconsideration.
Accordingly, annual loss reduction targets were fixed and must be achieved without upward revisions, reinforcing accountability and performance discipline. In terms of capital structure, NEPRA maintained a notional 70:30 debt-to-equity ratio for both tariffs, consistent with sectoral benchmarks and regulatory norms, despite KE’s actual ratio differing. KE’s actual capital structure will not affect this benchmark for tariff purposes.
The Authority has allowed KE to recover the cost of foreign debt based on 3-month LIBOR or SOFR plus a 4.5% spread, including applicable hedging costs, and to claim exchange rate variations on both interest and principal for unhedged loans.
KE’s actual recovery performance will be closely monitored throughout the control period to ensure service integrity. KE, while justifying the requested tariff cited substantial improvement in loss reduction, removal of operational subsidies, and the need for a stable regulatory environment to support operations in a high-risk service area.
In parallel, KE requested a transmission tariff with a proposed 15% USD-based RoE and similar indexing mechanisms as in distribution. NEPRA’s review focused on long-term viability, adjustments for foreign and local loans, hedging costs, and capital expenditures linked to KE’s grid improvement plans.
The regulator allowed a 12% RoE for its transmission segment, recognizing the utility’s investment requirements and risk exposure. KE requested O&M of Rs. 9.22 billion whereas NEPRA approved Rs. 6.66 billion (excluding imprudent/non-operational items).
Stakeholders echoed concerns, particularly around the inclusion of taxes as pass-through items and system inefficiencies. However, support was also voiced by industry associations such as Korangi Association of Trade & Industry (KATI) and Pakistan Leather Garments Manufacturers and Exporters Association (PLGMEA), provided that industrial tariff stability and broader efficiency reforms were ensured.
NEPRA acknowledged the need for stable, long-term tariff structures to support KE’s investment needs, especially in the context of borrowing and infrastructure expansion. The authority balanced this with public feedback and performance benchmarking against other distribution companies (DISCOs).
KE’s request to actualize the cost of debt, including hedging premiums, was accepted in principle by NEPRA, with actual costs to be verified at the time of adjustment.
With regulatory clarity on both transmission and distribution fronts, KE is expected to move forward with its planned investments aimed at improving service quality, system reliability, and operational efficiency in Pakistan’s largest metropolitan area.
