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Increase in tariff of distribution companies sought

pepco pakistan newsISLAMABAD: The National Transmission and Despatch Company (NTDC) re-designated as the Central Power Purchase Authority (CPPA) in place of Pepco has sought a 7.3 per cent increase in average base tariff of nine distribution companies of Wapda.

The NTDC said that its operational cost had risen by 25 per cent because of a 50 per cent increase in salary announced by the federal government. Besides, it had to pay higher debt-servicing and insurance and maintenance costs, which required an increase in tariff by 7.3 per cent.

The National Electric Power Regulatory Authority (Nepra) will hold a public hearing on NTDC’s tariff petition in a couple of weeks to determine whether or not the request is justified.

KESC PLEA REJECTED: Nepra has rejected a request by the Karachi Electric Supply Company seeking over Re1 per unit increase in average base power tariff and change in other performance criteria. Nepra said that the request, if approved, would change major clauses of the privatisation agreement and burden the people of Karachi.

The regulator, however, agreed to raise the rate of security deposit for consumers, but said it would announce revised rates, along with other distribution companies, over the next few months.

The KESC management had sought material changes in its existing arrangement. This included a request for an increase in operation and management component and fuel and power purchase component of the existing tariff, re-setting of transmission and distribution losses, removal of clawback mechanism envisaging passing on the impact of reduction in losses to the consumer, modification in terms and conditions of power supply and increase in the rate of security deposit from consumers.

In its determination on KESC’s petition, Nepra said the 43 paisa per unit increase sought by the company on account of 7,600 employees just prior to privatisation and its failure to meet O&M (operation and maintenance) cost through the existing tariff was not justified.

The regulator took a ‘principled position’ for not allowing anything on account of inefficiency and poor performance and departure from Nepra’s directives and for being against the multi-year tariff determination introduced in 2002 — much before the privatisation of KESC that made the basis for the privatisation deal after a detailed due diligence.

The KESC said that if the increase in O&M cost was not allowed to be passed on to the consumer, the company would incur heavy financial losses and its long-term sustainability would become doubtful. It threatened to continue utilising the investment component of its tariff to fund operating costs, “creating the same vicious cycle that brought the KESC to its existing condition over the past 30 years”.

The regulator held that KESC’s O&M cost had a direct linkage with its performance and reduction in line losses. “T&D (transmission and distribution) losses and other inefficiencies and wasteful expenditures do not justify KESC’s claim for an increase in its O&M cost component,” Nepra said.

The regulator also rejected another 15 paisa per unit increase in tariff on account of heat rate and fuel cost component. It also did not accept KESC’s demand for allowing T&D losses of 34.2 per cent and then envisaging one per cent per annum reduction and said that any change in losses because of “non-performance by the KESC’s approved last level as provided in the multi-year tariff determination of the authority made in 2002 is not acceptable….as it would negate the sole purpose of GOP handing over KESC to a private management in 2005”.

The regulator did not accept the company’s request for suspending the clawback mechanism for seven years or till the time it is able to overcome its accumulated losses. Under the mechanism, the KESC is allowed up to 18 per cent return on investment and is required to share the impact of reduction in losses above this limit with the consumer.

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