KE to Pocket Rs 300B: PD Tells Nepra
Staff Report
Islamabad: Power Division has challenged the decision of the power regulator in granting multiyear tariff to KE, alleging that it would allow to pocket over Rs 300 billion from the consumers.
“Total Financial Impact is in excess of PKR 300 billion of the interventions identified for review by GOP in KE MYT,” power division said in a review petition submitted to Nepra.
The Power Division has challenged the multiyear tariff allowed by the power regulator and submitted its review petition to National Electric Power Regulatory Authority (Nepra).
Government of Pakistan’s Review Petition on K-Electric’s Tariff Decision
- Background
● What’s happening?
The Government of Pakistan (GoP) has asked NEPRA (the national power regulator) to revisit its recent approval of electricity rates for K-Electric (KE), Karachi’s main power company. KE’s new tariffs take effect for FY 2024–25 and run through FY 2030.NEPRA approves multi
● Why this matters:
The GoP believes NEPRA allowed several cost items and profit margins for KE that are higher or more favorable than for any other utility in Pakistan, resulting in unnecessarily high bills for consumers and extra pressure on public finances.
- Key Concerns in the Review Petition
Below is a simple overview of each major concern. All figures refer to amounts in Pakistani rupees (Rs.) over the specified fiscal years.
A. Supply (Fuel & Fuel-Related Costs) - Inflated Fuel Cost Benchmark
○ NEPRA set KE’s fuel-cost rate at Rs. 15.99/kWh, whereas other utilities buy power at lower rates from the national grid.
○ This gap shifts about Rs. 28 billion (FY 2024) and Rs. 13 billion (FY 2025) of extra costs onto the federal budget rather than KE customers.
- Recovery Loss Allowance
○ KE was permitted to include “recovery losses” in its tariff even though its own records show it recovers more than the level NEPRA allowed. No other utility received this special allowance.
○ This adds roughly Rs. 36 billion in FY 2024 and Rs. 35 billion in FY 2025 to KE’s revenue that consumers end up paying. Cumulative impact over a 7-year period is more than Rs 200 billion
- Working Capital Allowance
○ NEPRA permitted KE a 24 percent markup on working capital, a much higher percentage than in its previous tariff and higher than any other power distributor.
○ This increased KE’s allowable revenue by about Rs. 2.4 billion in FY 2024 and is projected to total around Rs. 15 billion over the control period of 7 years
- Higher Allowed Distribution Loss
○ NEPRA set KE’s allowed loss at 13.90 percent, instead of the 13.46 percent KE had planned. Losses are electricity that is generated but not billed, due to leaks or theft, or kuunda. Around 7 percent of all such leakages can be attributed to theft
○ By permitting a higher loss level, KE passes on an extra Rs. 3.1 billion in FY 2024, rising to about Rs. 21 billion over the control period.
- “Law & Order” Margin
○ KE received a special 2 percent margin to offset security costs in Karachi—a perk not granted to any other utility, even those operating in equally or more volatile regions. Moreover, Law & Order in Karachi has improved considerably over the last few years, and thereby there exists no reason for asuch a margin
○ This margin adds approximately Rs. 14 billion in FY 2024 and up to Rs. 99 billion over the multi-year period to KE’s revenue requirement.
- Retention of “Other Income”
○ KE is allowed to keep money from fines imposed on its contractors, interest on bank deposits, and profits from side businesses
○ In effect, consumers have already paid for the assets that generate these incomes, so these funds should reduce KE’s costs to customers, not pad its revenue. Effectively, it is being proposed that any such gain on assets that has been financed by consumers needs to be shared with consumers
B. Transmission (Moving Power from Grid to KE)
- High Transmission Loss Target & Skewed Sharing
○ NEPRA allowed KE a 1.30 percent loss target, even though KE’s historical losses are closer to 0.75 percent.
○ KE keeps 75 percent of any savings if it performs better than 1.30 percent, passing only 25 percent of savings to consumers. This encourages inefficiency and keeps bills high.
Financial impact: about Rs. 4 billion in FY 2024, rising to roughly Rs. 28 billion over the control period.
Excessive Return on Equity (RoE)
KE was granted a 12 percent RoE in U.S. dollars (about 24.46 percent in rupee terms). Other national utilities (like NTDC) receive only 15 percent RoE in rupees.
This difference costs consumers around Rs. 4 billion in FY 2024 and approximately Rs. 37 billion over the control period.
C. Distribution (Delivering Power to Homes & Businesses)
- High Distribution-RoE Disparity
○ KE’s distribution arm was allowed 14 percent RoE in U.S. dollars (about 29.68 percent in rupees). By comparison, other Discos like FESCO get only about 14.47 percent RoE in rupees.
○ This adds roughly Rs. 3.7 billion in FY 2024 and Rs. 35.6 billion over the control period to KE’s revenue.
- Distribution Loss & Special Allowance
○ KE was granted an extra 2 percent “law & order” margin on top of its allowed losses, even though Karachi’s security situation is similar to or better than other regions.
○ KE also keeps 25 percent of any savings if it performs better. These practices cost consumers about Rs. 14 billion in FY 2024 and up to Rs. 99 billion over the multi-year period.
- Working Capital Markup
○ A 23.91 percent markup was approved for KE’s distribution working capital—far higher than any other utility. This adds about Rs. 0.8 billion in FY 2024 and roughly Rs. 10 billion over the control period to KE’s revenue requirement.
D. Generation (KE’s Own Power Plants)
- Payments to Idle Power Plants (Take-or-Pay)
○ NEPRA approved capacity payments to several KE power plants (BQPS-I, KCCP, KGTPS, SGTPS) even though these plants will run at minimal or no output because KE sources cheaper power from the national grid.
○ Consumers and the government pay for capacity that is not used. This costs about Rs. 12.7 billion in FY 2025 and roughly Rs. 82.5 billion over the multi-year period.
- Favorable Indexation & RoE for KE’s Plants
○ Under a hybrid “take-or-pay” model, KE’s plants keep full inflation adjustments (indexed to U.S. CPI or USD/PKR), while independent power producers (IPPs) do not receive equally generous terms.
○ RoE for KE’s plants was set at 17 percent (using PKR 168/USD), higher than typical IPP terms, costing Rs. 7 billion in FY 2024 and about Rs. 57.3 billion over the control period.
- Overall Impact on Consumers & Fiscal Health
● Higher Bills for Karachi Customers:
KE’s allowed costs, profit margins, and extra allowances will cause Karachi consumers’ electricity bills to rise significantly compared to other regions.
● Extra Burden on Federal Budget:
Several KE cost items—especially the inflated fuel benchmark and payments to idle plants—are effectively covered by the government, stretching public finances.
● Unfair Treatment & Efficiency Discouraged:
Granting KE advantages not given to other utilities creates a “two-tier” system. This discourages KE from boosting efficiency, and it undermines transparent, consistent tariff-setting nationwide.
- Government’s Position
- Fairness & Uniformity:
All utilities should be treated equally. KE should not receive special cost or profit allowances unavailable to other power companies. - Protecting Consumers:
Tariffs must reflect actual costs and reasonable returns. Extra allowances for inefficiency and high profit rates must be removed to keep bills affordable. - Regulatory Accountability:
NEPRA should revise assumptions, benchmarks, and profit margins so they align with real performance data and the standards used for other utilities.
Total Financial Impact
Category Issue Estimated Financial Impact
Fuel Costs Benchmark set at Rs. 15.99/kWh, higher than national average Rs. 41 billion (FY24–25)
Recovery Loss Allowance KE allowed losses it doesn’t actually incur – only actual losses to be allowed following due-write-off process Rs. 35 billion (1 year)
Rs. 200 billion+ (2024-30)
Working Capital Markup Duplication of working capital cost Rs. 15 billion (2024–30)
Distribution Loss NEPRA allowed 13.90% vs KE’s actual 13.46% which provides it more cushion, and less incentive to improve Rs. 21 billion (2024–30)
2% Law & Order Margin Special cost margin only for KE Rs. 99 billion (2024–30)
Idle Plants (Take-or-Pay) Payments approved for unused capacity, which is expensive and barely utilized Rs. 82.5 billion (2024–30)
Return on Equity (RoE) 12% in US$ terms, which is approx. 24.46% in rupee terms (vs 15% in rupee terms for others) Rs. 35.6 billion (2024–30)
Total Financial Impact is in excess of PKR 300 billion of the interventions identified for review by GOP in KE MYT
