KE’s sustained investments making Karachi brighter

KE and Karachi share a relationship that extends over a century. We are deeply enmeshed in the fabric of this city and have witnessed its growth from humble origins to today’s bustling megalopolis. Today, Karachi is responsible for 20% of Pakistan’s GDP, contributes over 55% of federal tax revenue, and handles over 95% of foreign trade through its ports. The city’s 7 industrial zones – which have been exempted from load-shed since 2010 – are responsible for almost 40% of the large-scale manufacturing employment of the country.

This boom in growth has been accompanied by an influx of migrants from across the country seeking better job opportunities and a better quality of life for their loved ones at home. The result has been a mushrooming of the city’s urbanized areas. Until the point of privatization, KESC had unfortunately been unable to keep pace with this socio-economic development of the city. Our power plants were old and less efficient, and our transmission and distribution networks were also in a poor state.

Post-KESC privatisation, KE’s investors demonstrated their commitment to the city with an aggressive influx of capital and a practical overhaul of its infrastructure. We have added 4 highly efficient power plants enhancing KE’s generation capacity by over 1000 Megawatts. We have invested heavily in setting up more grids and laying down new power lines on the transmission and distribution front. Today, KE’s total transmission and distribution network can stretch from Karachi to New York when laid end to end. This is the scale of our operation within an area of just 6500 square kilometers.

We did not shy away from going over and above our commitment to Karachi. Between 2009 and 2016, KE invested 22% more than what we had submitted to Nepra in our tariff petition under a new tariff regime introduced in 2017. Where Nepra allowed us an investment of PKR 299 billion in the period between FY 2017 and 2023, our own plans envisage an over PKR 400 billion investment plan to bolster Karachi’s burgeoning power needs, subject to their regulatory approval. We have also worked closely with the Ministry of Energy, NEPRA, and the National Transmission & Despatch Company to bolster our interconnections at key locations, enabling us to off-take additional supply from the national grid for the continued growth of Karachi.

What have we achieved through these targeted investments and efforts? A drastic reduction in transmission and distribution losses, which has been documented and acknowledged by independent reports published by NEPRA, the regulator for the power sector; a doubling of our transmission and distribution network capacity through the addition of 19 new grids and over 20,000 PMTs respectively; an overall 25% improvement in the efficiency of our generation fleet. KE’s trajectory of improvement is well documented and independently verifiable in numerous reports that the regulator continues to publish as well. Where KE has successfully lowered its line losses, state-owned entities have not been able to keep up. Today, 78% of KE’s service area is exempt from load-shed, including pockets of areas like Lyari which were considered inaccessible half a decade ago. We work with the vision that a stable, reliable, and safe supply of power is pivotal to enhancing the quality of life for our consumers.

KE is continually exploring ways to improve the quality of service to its customers. However, we have to understand some fundamentals. The continued investment in Karachi’s growth can only be sustainable for the company or indeed any private investor with appropriate support provided by the regulator. KE’s strong performance record has set a positive precedent for the country; the Federal Government is considering privatizing the state-owned DISCOs in earnest to bring about the transformation of these entities as well.

At this critical juncture, the regulator has an immense responsibility. They have to balance the cost of electricity to the consumers along with providing adequate returns on investment to the utilities as well. We understand this and have been working with NEPRA to devise a feasible mechanism that can strike this balance. As former FBR Chairman Shabbar Zaidi wrote in an article last month:

“Instead of keeping investment plans rigid, the focus should be on providing an investment enabling tariff. This will automatically ensure that utilities are able to make investments sustainably. This in turn benefits consumers while also keeping a close check that investments are made as committed.”

KE’s tariff is determined by the regulator for a control period of 7 years which is why it is named as a Multi-Year Tariff (MYT). This control period also comes with a Mid-Term Review, which is when the regulator reviews assumptions made in tariff including the investment plan of the utility. From 2009 to 2016, KE was operating under an MYT model known as a performance-based tariff regime which prioritized operational efficiency and encouraged investments that fulfilled this aim. In the current control period, KE has been operating on a cost-plus tariff which means that KE can only make a return on investments if it is allowed to recover the costs that it incurs adequately. Without recovery, there is neither incentive nor financial viability to invest, which is a limiting factor and presents a challenge for any power utility across the globe. Of course, the plans submitted to Nepra depend on their approval and we hope that they consider all of these factors.

As part of our continued vision for investment in the city, KE’s Board of Directors has submitted an additional investment plan keeping the needs of Karachi’s consumers in view. With the additional planned investment, our overall plan exceeds PKR 440 billion that the company is willing to invest over the tariff control period, subject to regulatory approvals. This plan focuses on the parameters of safety and reliability and is aimed at driving further progress in Karachi’s infrastructure. These revisions were also necessary to keep pace with the evolving global economy during and after Covid-19. We want to make sure that we deliver on our commitments which is why we have envisioned this additional investment. We hope that the regulator will consider all of these factors when they allow us to invest above and beyond what was allowed, based on the evolving environment and new challenges facing the global economy that we are operating in.

As the only privatised utility, local and foreign investors have been following KE’s progress closely because the utility’s experience serves as a litmus test for the power sector’s stability as a whole. Especially at a time when state-owned DISCOs have also entered the discussion on privatization and with the dream of the country’s transformation towards an open energy market being pushed forward, decisions made about KE will carry immense implications for the future of the country’s power situation, and the energy sector as a whole. I have a firm belief that through consultation and° consensus, we will be able to achieve a bright future for Karachi and Pakistan.

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