Power Sector Losses Reach Rs281 Billion in FY 2023-24

Published at: December 11, 2024 8:11 AM

Updated at: December 26, 2024 11:16 AM

Pakistan's electricity companies incurred a significant loss of Rs281 billion in the 2023-24 fiscal year, according to a new report by the National Electric Power Regulatory Authority (NEPRA). The losses are primarily attributed to poor operational performance, despite a notable increase in electricity demand. The report also highlighted that power companies failed to maximize the use of cheaper power plants, exacerbating the financial strain on the sector.

The NEPRA report assessed the performance of electricity transmission and distribution companies and pointed out that these companies failed to meet their targets for reducing losses. In addition to the financial losses, NEPRA observed that the sector's poor recovery rates led to a shortfall of Rs380 billion in the national treasury. Over the course of the year, more than 3.4 million complaints were lodged against power companies, with many related to billing issues and poor service.

The report also raised serious concerns about safety in the sector, revealing that 140 fatalities occurred in areas managed by power distribution companies. K-Electric, which handles electricity distribution in Karachi, reported the highest number of deaths, with 34 fatalities, including 32 civilians and two company employees. NEPRA called for stronger adherence to safety standards and urged the power companies to take operational measures to address the rising number of accidents and fatalities.

In a separate development, K-Electric sought NEPRA's approval for Rs68 billion in write-offs, citing financial difficulties in managing Karachi's power supply. The claims, which span multiple fiscal years under the utility's Multi-Year Tariff (MYT) framework, highlight the operational and financial challenges faced by K-Electric. The write-offs were mainly due to bad debts, with the company reporting Rs119 billion in its audited accounts, of which it sought approval for Rs68 billion after undergoing thorough internal and external verifications.

The request for write-offs centered around the legacy liabilities from the 2018 decision by NEPRA, which introduced a mechanism for recovery loss provisions. K-Electric argued that these claims were related to old liabilities from previous fiscal years and should be considered under the current tariff period. The company stressed that its recovery rate had peaked at 95.4% in FY2022, but challenges such as macroeconomic instability and tariff hikes had undermined these gains. Additionally, illegal reconnections and the socio-economic conditions in Karachi posed significant recovery hurdles.

The issue of illegal electricity connections, particularly "hook" connections in unauthorized settlements, was also raised during the discussions. K-Electric reported a reduction in these connections from 4% to 0.2%, but acknowledged that certain areas remained problematic due to weak regulatory enforcement. The company clarified that the write-offs only pertained to billed amounts, not to energy theft.

During the hearing, NEPRA officials expressed concerns about the verification processes to avoid duplication and sought further clarity on K-Electric's disconnection and recovery policies. Some stakeholders expressed concerns about passing the burden of write-offs onto consumers, who are already facing high electricity tariffs, while others emphasized the need for a transparent regulatory framework.

The outcome of NEPRA's deliberations will set a crucial precedent for addressing the financial challenges in Pakistan's energy sector.