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K-Electric plans to spend an investment of Rs392bn for different projects

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Topline Securities organized the Pakistan Mid Cap Conference 2024. The conference started with a session on K-Electric (KEL), where the key speakers of the session was Mr. Muhammad Aamir Ghaziani, CFO of KEL.

Separate Tariff for each business line: Keeping in view learnings from previous Multi Year Tariff (MYT), KE has filed separate tariffs for each business i.e. Generation, Transmission, Distribution & Supply. Within this, company has requested NEPRA to set tariff comparable to other IPPs in generation i.e. USD 15% ROE on regulatory asset base of generation business. Similarly, for transmission, there will also be a separate dollar indexed ROE.

The management also highlighted that the new tariff will be different from the previous one, as it will be consistent with other power sector entities’ indexation mechanisms for variations in KIBOR, LIBOR, SOFR, exchange rate, and adjustment mechanisms for the actualization of sent-out units.

Finance cost (interest rate) in previous tariff was incorporated as fixed, while in new MYT, KE has asked for treatment which other IPPs are getting (pass through treatment).

Renewed License: Post expiry of previous licence in Jul-2023, KE has already been granted separate licences for Distribution and Electric Supply for 20-Years. The licence is non-exclusive basis and management highlighted that there would no material impact on KE due to high CAPEX requirement and other barriers.

Tariffs update: Generation MYT is at advanced stages of approval with NEPRA. Further, Transmission, Distribution & Supply are being processed by NEPRA. The management is confident that they will receive tariff decision by 3Q2024.

Investment Plan: NEPRA has approved investment of Rs392bn which aims to achieve (1) 30% growth in customers, (2) 30% increase in share of renewables, (3) 30% reduction in power outages, and (4) 2.3% reduction in distribution loss.

The above investment will facilitate addition of 2,272 MW of generation capacity, including 1,282 MW of renewable energy (wind, hydel, and solar), the addition of 13 grids and 450 km of transmission lines, 444 feeders, and 7,606 distribution transformers, among other improvements.

The KE’s recovery rate has now improved to 92.8% from earlier 84%. The management has incorporated an improvement curve in the recovery from the existing rate in the petitioned tariff.

View on Circular Debt: Management highlighted that GoP is now fully budgeting subsidy which will help curtail circular debt accumulation.

KE has signed few contracts with GoP which includes, 1) Settlement of Historical receivable/Payable: Mediation Agreement signed between the parties including KE, GoP, CPPA, NTDC, SSGC and KWSB, 2) Securities of Supply to KE from National Grid: Power Purchase Agency Agreement (PPAA) and Interconnection Agreement (IA) executed with CPPA and NTDC respectively for 10-Years, 3) Execution of Facilitation Agreement for timely payment to KE: Tariff Differential subsidy (TDS) agreement singed between KE and GoP. KE’s TDS to be released within 30-days of filing by KE along with mechanism for markup on delayed payments.

Courtesy – Topline Securities

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