Regulator approves Rs392bn investment plan for K-Electric
ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Wednesday approved a Rs392 billion investment plan for K-Electric’s transmission and distribution network to reduce system losses and meet demand growth over the next seven years.
Under the decision, the Karachi-based private power utility has been allowed to invest over Rs238bn in the transmission network, Rs137bn in the distribution network, and another Rs17bn in related support systems like defence, cybersecurity, information technology, resource planning, etc., from FY24 to FY30.
The approval comes almost one and a half years after the privatised entity sought Rs484bn worth of a seven-year investment plan, on which the regulator conducted a public hearing on March 1, 2023.
Nepra, in its decision, noted that the KE took the stance that subsidy was the government’s prerogative and dependent on multiple factors. The KE said that its claimed investment of Rs484bn would result in a Rs3.2 per unit increase in tariff based on an exchange rate of Rs206 to a dollar on account of Rs1.9 per unit in transmission tariff and Rs1.3 per unit in distribution tariff. While the investment has been reduced from Rs484bn to Rs392bn, the exchange rate has since deteriorated to Rs280 per dollar. “Since there is a uniform tariff in the country, thus the subsidy will be impacted. However, this issue will be discussed and finalised during the proceedings of supply tariff,” the regulator noted.
The investment plan involves 14 growth projects to meet the future load growth of the customers at total cost of Rs120bn in Multi-year Tariff (MYT) control period from FY24 to FY30. Out of this total amount, Rs80bn has been allowed against KE’s claim for Rs85bn for the growth projects related to grid stations. Another Rs41bn has been allowed for transmission lines for growth against a claim of Rs55bn.
This would involve adding 450km of transmission lines, 13 new grid stations, and enhancing the transformation capacity to 755MVA (megavolte amperes) at the 132 kV voltage level and 3,800MVA at the 220 kV and above voltage level.
KE had claimed customs duties at the rate of 15pc on the foreign cost component (FCC) of the transmission projects which was reduced to 8pc by Nerpa in line with past precedents in the case of 660 kV high voltage transmission line from Matiari to Lahore. The custom duties shall be allowed as per actual, subject to the certification and third-party audit to be provided by KE.
Likewise, KE had claimed the cost of interest during construction (lDC) at 20pc, which was accepted by Nepra on provisional basis. However, it held that IDC shall be allowed only for the allowed completion period and shall be worked out based on the cost of debt, to be allowed in the tariff determination.
Loss reduction
On the distribution side, Nepra allowed the biggest chunk, Rs43bn, of the total Rs137bn investment to be spent on energy loss reduction, followed by Rs30bn for distribution network maintenance and Rs29bn for distribution growth. About Rs20bn would be spent on distribution safety.
Nepra noted that most of the growth projects on the transmission side were primarily demand-driven projects, as KE had estimated a yearly demand growth rate of 2.4pc to justify the proposed investment. According to KE, if the demand turned out to be higher or lower than expected, the timing of these projects would need to be adjusted to match the actual demand to ensure that the resources were used efficiently and the customers were not burdened with the cost of non-utilisation of assets.
Published in Dawn, April 25th, 2024