KE’s privatisation model reaffirmed in analyst briefing

K-Electric’s senior leadership reaffirmed the tangible benefits of privatization, highlighting the utility’s operational turnaround, improved efficiencies, and the broader value delivered to both the government and customers.

In a corporate briefing session held at the Pakistan Stock Exchange (PSX), KE CFO Muhammad Aamir Ghaziani highlighted the company’s progress since privatisation.

Backed by over $700 million in Foreign Direct Investment, KE has invested more than $4.6 billion in Karachi’s power infrastructure.

These investments—financed through internal cash flows and debt-equity combinations—have led to material enhancements across generation, transmission, and distribution. KE’s CFO reiterated that if KE hadn’t been privatised, these efficiencies and upgrades would never have materialised. The sector may have been looking at an even larger circular debt burden today.

One of the most striking outcomes: KE’s operational improvements have delivered over Rs. 900 billion in cumulative savings to the government and customer—savings that would otherwise have ballooned the national circular debt. KE’s AT&C losses, which stood at 43% in 2009, reduced to 21% in 2023, now with a NEPRA-mandated trajectory aiming for 15.6% by FY2030. The CFO shared that just this improvement alone is projected to generate an annual benefit of Rs232 billion by 2030.

The session mainly addressed recent questions raised around the company’s newly approved Multi-Year Tariff (MYT). The CFO clarified that the determined tariff approved by NEPRA stands at Rs. 39.98 per unit, which is lower than the Rs. 44 per unit that KE had proposed. The reduction reflects NEPRA’s own benchmarking and prudence but also means KE must operate within a tighter financial framework.

The CFO clarified that while NEPRA has approved a determined tariff under the new MYT, this rate has no direct impact on what customers actually pay. Under the government’s Uniform Tariff Policy. As a result, the new MYT framework provides financial visibility for KE without passing on any additional burden to customers.

In addition to lowering the overall tariff, several of KE’s key proposals were not accepted. These include the request for a 1.5% retail margin, a cap-and-floor mechanism for recovery losses, sent-out growth indexation in O&M costs, and certain components of working capital. Despite these rejections, the MYT provides much-needed predictability and regulatory certainty that can enable long-term investment and performance planning.

The CFO also addressed concerns around rising electricity bills and the PHL surcharge, which appears on bills across the country. He clarified that this surcharge stems from the circular debt accumulated by public sector DISCOs, and that KE has no contribution to this pool—not even a single rupee. Yet, Karachi’s customers are paying this charge like everyone else, despite KE operating outside the federal subsidy and circular debt framework. He added that KE’s improved loss trajectory—lower than the overall power sector average—is in fact reducing the financial burden on the national exchequer, not adding to it.

KE’s own distribution margin, including prior year adjustments, stands at PKR 2.87/kWh, which is lower than the margin allowed for many public-sector DISCOs, reflecting KE’s relatively more efficient cost base. While NEPRA has allowed KE to recover some recovery losses, no retail margin was permitted—despite KE operating its own retail supply chain with on-ground staff managing billing and collections.

KE’s energy mix also came under discussion. The CFO clarified that KE’s reliance on RLNG makes its energy purchase cost appear high due to a lack of access to cheaper indigenous gas.

The session ended with a strong message on the future. With a $2 billion investment plan awaiting approval after the MYT, KE is targeting further expansion in renewables, system upgrades, and grid enhancements. The company has already broken ground with Pakistan’s first-ever competitive bidding for renewable capacity, securing some of the lowest tariffs seen to date.