Reduction in T&D losses can help in improving revenue
By SHABBIR H. KAZMI
August 9 - 15, 1999
National Electric Power Regulatory Authority (NEPRA) has started
hearing of second amended petition of The Karachi Electric Supply Corporation (KESC). Many
people fail to understand "why KESC has been forced to demand 1.61% reduction in
average tariff whereas it needs 19.26% increase mainly to meet loan covenant?" The
ultimate decision of NEPRA will be influenced to loan covenant. Besides, the Corporation
has no concrete plan to meet the conditions of loan provided by the Asian Development
Bank. The condition requires that KESC should generate 25% of capital expenditure
The ritual seems even more surprising due to government's decision to
implement uniform tariff throughout the country and NEPRA's notification regarding revised
tariff for WAPDA. Therefore, it will be more appropriate to decide first whether the
government decision or loan covenant is the deciding factor? Technically, loan covenant
surpasses any decision of the government. Internationally, loans are disbursed on the
basis of cash flow of the borrower and KESC cannot be an exception.
Even the earlier decision of NEPRA to notify tariff for WAPDA was
incorrect as it never examined KESC's request. Apparently, NEPRA was confident that its
decision would not impair KESC's financial position, which proved to be incorrect.
Therefore, it is necessary to understand and compare the working of KESC and WAPDA before
making any decision, even if it is based on the policy of the Government of Pakistan.
The two utilities use different modes for electricity generation. WAPDA
still generates nearly 45% of its total electricity mainly at two hydel projects, namely
Mangla and Tarbella whereas KESC's entire power generation facility is thermal based.
There is a world of difference between the cost of generation at hydel projects and
thermal power plants. The average cost of electricity generation at hydel projects is less
than 50 paisa/kwh whereas the fuel cost alone for a thermal power plant works out around
Rs 1.40/kwh. It becomes even higher for an inefficient company like KESC. The efficiency
of KESC's thermal power plants has been going down due to inadequate maintenance. Since
the cost of generation for the two utilities are different the sale price/kwh cannot be
This clearly demands that tariff to be charged by WAPDA and KESC should
be different under the prevailing circumstances. However, it should not imply, in no
manner whatsoever, that KESC should be allowed to charge a higher tariff from customers
located in its franchised area. The situation, however, demands some sort of compensation
and/or subsidy to the KESC to bring down its average cost of generation/kwh to make it
comparable with average cost of generation /kwh in case of WAPDA.
For this purpose, the following alternatives may please be considered
to reduce the average cost of generation in case of KESC:
KESC buys electricity from WAPDA mainly to meet its shortfall in supply
and the average purchases vary from 200MW to 400MW. WAPDA supplies electricity to KESC at
an average cost of Rs 3.60/kwh. Therefore, WAPDA should be asked to charge nothing more
than 60 paisa/kwh from KESC. Does not Karachi deserve this at the minimum? Certainly
'YES', because the city is the hub of industrial and commercial activities. Besides 1/10
of Pakistan's total population lives in the city. Therefore, the city must get, at least
1/10, of total hydel generation at the rate of 60 paisa/kwh and not at Rs 3.60/kwh.
The other alternative is that KESC should be provided furnace oil at a
realistic price. At present KESC's main source of power generation is Bin Qsaim thermal
power station. This facility is very close to Zulfiquar Terminal of Pakistan State Oil
(PSO) and furnace oil is supplied to KESC through pipeline. Therefore, PSO should not be
allowed to charge KESC a price it charges from WAPDA.
The last, though not prudent, alternative is to allow KESC to charge a
higher tariff, as compared to WAPDA, to meet its financial obligations. However, this will
be highly unfair to people living in KESC's franchised area.
KESC's dismal financial condition is the result of mismanagement. This
includes over 45% T&D losses mainly comprising theft, poor power generation
efficiency, inability to recover receivables, over employment both executives and
workers and out of proportion over-time payments. Therefore, the consumers should not be
forced to finance the inefficiency of the Corporation. KESC should be asked to improve its
operations rather than demanding any increase in tariff. The increase in tariff allowed in
the past has never helped in improving its financial condition.
While it may be true that workers are indulged in unfair practices, it
is the senior management which is responsible for the most of the ills of the Corporation.
'Operation Snake Hunt' is the exhibition of the efforts of the senior executives of the
KESC to mislead. Domestic Kundas are not the real issue. It is the massive theft by
industrial, commercial and large domestic consumers which contribute the largest
percentage of total theft or T&D losses.