K-Electric faces resistance over proposed fuel adjustment charges

ISLAMABAD: While hearing K-Electric’s request for up to Rs18.6 per unit additional fuel cost recovery from its consumers for the past nine months, the National Electric Power Regulatory Authority (Nepra) on Thursday directed the Karachi-based power utility to ensure that the Matric and intermediate students do not suffer because of power outages.

During a public hearing presided over by Nepra’s Sindh member, Rafique A. Shaikh, major consumer groups and trade bodies pleaded that no monthly, quarterly or annual tariff increase be allowed to K-Electric until consumers get the benefit of about Rs75 billion payable to them but blocked by the utility through stay orders.

The consumers also challenged the locus standi for provisional fuel cost adjustment (FCA) for nine months based on unapproved base tariff and questioned a few fresh items claimed in the adjustment, like working capital, etc, not allowed under the law.

Business and trade bodies, particularly the Karachi Chamber of Commerce and Industry (KCCI), Surjani Association of Trade and Industries (SATI), Korangi Association of Trade and Industry (KATI) and steel producers also pledged not to pay the proposed fuel cost adjustments even if approved by the regulator, not only because their members had already gone paupers but their legitimate dues determined by Nepra had been blocked by K-Electric through stay orders from courts.

Businesses refuse to pay proposed FCAs; power utility ordered to exempt exam centres from outages

They pointed out that about Rs46bn amount determined in 2016-17 by Nepra under the KE’s clawback mechanism for repayment to the consumers had been blocked by their power supplier through stay orders from the Sindh High Court. Another Rs28bn due under an incremental sales industrial package of the federal government had also not reached them because of stay orders in the SHC followed by an appellate tribunal.

The Nepra panel, comprising Mr Shaikh, Muthar Rana, Anwar Maqsood Khan and Amina Ahmed, expressed their inability to be of any help on these two items as the regulator had already settled them but were pending at higher judicial forums. They, however, promised to consider staggering the requested recovery to minimise the sudden impact.

Some political workers also opposed the proposed tariff hike and said the KE and the government had not been able to utilise surplus and cheaper capacity in the national grid because of problems with interconnection facilities while load-shedding spanned between three and 18 hours in various areas.

The KE’s team, led by its CEO Moonis Alvi, told the public hearing that the utility had exempted from load-shedding all examination centres as per a list provided by the relevant authorities but was ready to remove power cuts in similar other areas, as pointed out by the interveners.

KE’s chief financial officer, Aamir Ghaziani, explained that the petition sought to charge up to Rs18.6 per unit additional FCA from its consumers at an average monthly burden of about Rs2 per unit to mop up about Rs26bn additional funds and clear a backlog of about nine months (July 2023 to March 2024).

The power utility presented three different options for recovering the additional FCA from consumers on a “provisional basis” to clear the backlog and avoid a sudden increase in burden on its consumers.

Under the first scenario, K-Electric has proposed that the FCA be calculated as the difference between the actual fuel cost and the reference monthly fuel cost as per the interim tariff currently in place. In this option, the KE sought an increase in rates for seven months and a reduction in two months, with a net additional revenue of about Rs20bn. The cumulative net impact for nine months works out to be about Rs13 per unit, or an average of Rs1.45 per unit per month.

In the second option, the KE has demanded that it be allowed to charge consumers the difference between the actual and reference monthly fuel cost as per the tariff petition filed by KE and currently under Nepra’s deliberation. In this case, the utility has also sought an increase in fuel cost for seven months and a reduction in two months with a net accumulative additional fuel cost of Rs18.6 per unit at a monthly average of Rs2.06 per unit for nine months to raise about Rs26bn.

In the third scenario, the KE proposed that the difference between actual fuel costs versus annual weighted average fuel reference costs being considered as per the tariff petition filed by KE and currently under Nepra’s deliberation. In this case again, the utility is seeking additional fuel cost for seven months and reduction in two months. The net combined impact works out to be Rs16.9 per unit at a monthly average of about Rs1.90 per unit and entails a financial impact of about Rs22bn.

The consumers of ex-distribution companies (Discos) have already paid an average of Rs2.89 per unit FCA for these months, the KE’s team said. Nepra did not immediately announce its decision.

Published in Dawn, May 10th, 2024