KE launches fuel cost adjustment calculator

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The K-Electric (KE) has launched a Fuel Cost Adjustment (FCA) calculator on its website
(https://www.ke.com.pk/fcacalculator/), which will allow consumers to calculate the impact on their
monthly bill based on their monthly consumption. The pending FCA as determined by the National
Electric Power Regulatory Authority (NEPRA) would be applied from January 2020 onwards, spread over
9 months, based on the notification issued by NEPRA through the SRO dated 27 December 2019 which
also defines both the amount and the period over which the amount is to be adjusted. All details related
to FCA would also be provided in respective customer bills. Per NEPRA mechanism, fuel is a pass-
through cost to customers of all power distribution companies in Pakistan including KE. According to the
mechanism, a reference fuel cost is considered in determining the tariff and any increase or decrease in
actual fuel price compared to this reference cost is adjusted after verification by NEPRA, which is
subsequently passed on to the consumers, as per the NEPRA approved mechanism. However, due to
the delay in finalization of KE’s Multi-Year Tariff, KE could not pass on the increased fuel cost during the
period between July 2016 to June 2019 to its customers. In fact, KE has been absorbing this cost on
behalf of customers for the last three years, which has significantly constrained the company’s working
capital and cash flows while simultaneously increasing the financial cost on account of increased
borrowing. KE’s new MYT was notified by the Ministry of Energy (Power Division) on May 22, 2019 after
which KE filed its monthly and quarterly tariff variations, as allowed under the MYT, and a public hearing
was also held by NEPRA in this regard in August 2019. The variation in tariff was due to different factors
including rupee devaluation and increase in fuel prices. Furnace oil cost was PKR 27,700 / MTon in June
2016 and increased to around PKR 70,000 / MTon in FY 2019. The other major reason for increase in fuel
cost is reduction in supply of natural gas from SSGC, which resulted in the addition of re-gasified
liquefied natural gas (RLNG) in the fuel mix. Further, the cost of natural gas in June 2016 was PKR 613
per MMBTU and with the addition of RLNG in the mix, the cost of gas on comingled basis increased to
PKR 936 per MMBTU in FY 19. Despite delayed adjustments and the resulting financial burden on KE, to
ensure operational continuity and continued power supply to the people of Karachi, KE has consistently
met all operational expenses and continued to make regular current payments due to its fuel suppliers.