LAHORE: The government ‘has decided in principle’ to renew the agreement for supply of electricity to K-Electric, but with a reminder by the ministry of water and power that it is a “private concern and has to act accordingly — the extraordinary favours bestowed upon it by the PPP government cannot be sustained anymore”. The agreement expires on Jan 26.

According to sources in the ministry, the period for which the contract should be renewed is still being discussed.

Conditions likely to accompany the renewal involve mode of payments (with additional guarantees to make them regular), exhaustion of its own generation before approaching the national grid for help and delinking energy payments with other official bills.

These issues had been nagging the sector ever since the privatisation of the Karachi Electric Supply Company, an official of the ministry said. “Feeling its social and political responsibility, the government does not want to deprive the people of Karachi of electricity, but at the same time it also wants to remind the company that neither any free lunch is available nor would it be for an unlimited period,” he added.

Utility says payments have never been a problem

The payment for 650MW has been a constant problem with K-Electric. “It conveniently links its payments to the recovery from the Sindh government, the Karachi Water and Sewerage Board and federal bodies and tariff differential subsidy from the federal government and stops energy payments to the National Transmission and Dispatch Company,” he said.

Its current default, documented in November last year, stands at Rs32 billion. The new agreement would bind K-Electric to either clear those payments up front, or, at least come up with a credible methodology to do so within a minimum possible time.

The official said the new agreement would not only ask for dues but also delink future payments with K-Electric recoveries (or failures) or the end-consumer subsidy, which the government paid to all distribution companies.

“The sector is already providing electricity to the company at the prices at which all other distribution companies are getting, not at the marginal (the most expensive generation) cost as the original agreement stipulates. This is a huge favour that the PPP government did to the company by amending the Power Purchase Agreement (PPA). The new agreement would, and should, check this tactic of the company, and the ministry is working on that along these lines,” he said.

Apart from the payments, the original agreement — conditions on which K-Electric was privatised – stipulated the company can get “up to 650MW” from the national grid, implying thereby that it has exhausted its own generation first. The agreement also binds it to enhance its generation capacity within shortest possible time. K-Electric has done neither. It has rather shifted the entire burden on the national grid, at times drawing up to 800MW — and does not pay for it at one excuse or another.

The new agreement would ensure that K-electric first utilise all generation resources — captive, rental, IPPs and its own — and also register fluctuations in demand before asking power from the national grid, say people involved in the process of rewriting the contract.

But Osama Qureshi of K-Electric differs with points raised by the power sector managers.

“Energy payments have never been a problem. Had it been an issue, logic dictates both must have held a series of meetings to sort it out. But nothing of that sort happened.

K-Electric has been following the PPA and privatisation deed in true spirit. If the PPA links tariff differential subsidies with payments to the sector, what is wrong with the company asking for it before making other payments? Still, the company has over Rs100bn dues with the federal and provincial governments and their departments and has payables of Rs50bn. Who would not want to settle those accounts as quickly as possible?” he asks.

Published in Dawn, January 16th, 2015

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