NEPRA smells no rat in KESC-Byco link

The National Electric Power Regulatory Authority (NEPRA) has given a clean chit to the Karachi Electric Supply Company (KESC) in response to the allegations levelled by the power company’s Share Holders Association (SHA) over the shady business deals between KESC and Byco – a sister company owned by the power utility’s Abraaj-led management
Responding to multiple allegations made by the association related with the increase in electricity tariff through fuel adjustment surcharges; suspicious oil purchases from Byco and a loss of at least Rs 3 billion through purchase of costlier electricity from rental power plants, the
NEPRA has given an impression that nothing wrong is going on at the privately-run power utility.
The regulatory authority has, however, suggested that the complainants should approach the Securities and Exchange Commission of Pakistan (SECP) if they consider the transactions between KESC and Byco not per the provisions of companies’ ordinance.
Through a letter sent to NEPRA on December 16, 2011, the SHA had registered the following complaints:
a) KESC is purchasing oil from Byco which is a sister concern of KESC.
b) The way of delivering oil on trucks by Byco to KESC is suspicious, as it is very easy to steal the oil and increase the supplied quantity by anyone involved in the management of trucks.
c) The KESC management has caused an intentional loss of more than three billion rupees to the company by purchasing 50MW power from Aggreko – a Dubai-based company – having a previous relationship with the Abraaj Group.
In response, NEPRA, in a letter NEPRA/TRF-133/KESC-2009/571, claimed that it has carefully considered the contents of the letter and also gave a point-wise response to the complaints written as under:
a) The KESC signed a fuel supply agreement with Byco on September 24, 2010 and has submitted the same with the NEPRA. Before allowing monthly fuel charges adjustment in the KESC tariff, the authority verifies that purchase from every source is made at fair and competitive market prices.
Under NEPRA’s regulations, there is no bar on commercial transactions between associated companies as long as these are done in a transparent manner and at competitive rates.
The Companies Ordinance, 1984 provides threshold conditions for commercial transactions between associated companies, therefore, if you [SHA] are of view that transactions between Byco and KESC are not in accordance with the provisions of companies’ ordinance, you may take up the matter with SECP – the appropriate forum to deal with such matters.
b) The authority while allowing monthly fuel charges adjustment to KESC does not take into account the actual quantity of furnace oil consumed by KESC but determines it on the basis of the quantity of energy generated on each fuel, based on the approved parameters (heat rates) of each power plant; therefore, any loss due to theft of furnace oil specifically or other inefficient operations of KESC, generally, is not passed on to the consumers.
c) The KESC has been allowed multi-tariffs by NEPRA that will remain effective till June 30, 2016. Under the approved mechanism of the tariff, the adjustment in average sale rate on account of power purchase cost variation does not entail the adjustment of total cost of power purchased but only incorporates the variation in cost due to factors which are outside the control of power producer i.e. fuel prices, inflation, etc.
Therefore, if the power purchasing cost from any source is greater than the base rate allowed by the authority to KESC, it will cause losses to the KESC and not the consumers.
“Moreover, since the expiry on March 9, 2011 of the two-year rental agreement signed on September 4, 2008 between the KESC and Aggreko, the NEPRA has not allowed any variation in KESC’s electricity tariff on account of Aggreko,” the letter concluded.
Meanwhile, terming the NEPRA’s clarification biased and unjustified, SHA Vice President Javed Akhtar and Secretary General Mazhar Chaudhry claimed that tariff adjustment on the basis of fuel consumption is still unclear as there is no third party or NEPRA’s representative to monitor or inspect how much furnace oil is consumed at KESC’s power plants.
“The fuel adjustment is still being made on the basis of the data provided by KESC,” the SHA office bearers said, alleging that NEPRA had allowed tariff increase five times during the last two years on the KESC’s request.