Karachi, May 26, 2025 – In a significant regulatory development, K-Electric (KEL) has successfully secured a dollar-based tariff structure for its transmission and distribution operations, following a similar arrangement granted earlier for its power generation segment.
This new dollar-linked tariff will remain in effect for a period of seven years, covering the fiscal years from FY2024 to FY2030.
According to analysts at Topline Securities Limited, the National Electric Power Regulatory Authority (NEPRA) has approved a 14% USD-based Internal Rate of Return (IRR) for K-Electric’s distribution business. This translates into a PKR-based Return on Equity (ROE) of 25.6% for the first year (FY24), significantly higher than the previous PKR-denominated tariff, which offered a return of 16.67%.
Similarly, the company’s transmission segment has been granted a USD IRR of 12%, equating to a PKR ROE of 21.4% for FY24. This is an improvement over the earlier return of 15% under the local currency-based tariff framework. The newly introduced tariff regime breaks from past practice by unbundling the business into three separate components—generation, transmission, and distribution—each with its own regulatory return structure.
Earlier, in October 2024, NEPRA approved a dollar-based tariff for K-Electric’s generation business, offering a 14% USD ROE under a “take-or-pay” model. This move replaced the previous model, which offered a 17.56% PKR-based ROE (15% base plus a 2.56% pre-defined devaluation factor). Analysts view these new returns under the latest control period as a notable improvement and a positive signal for the company’s long-term financial planning.
The PKR-denominated returns appear higher than the USD returns due to the base exchange rate being indexed from FY2016, which accounts for currency devaluation over time. However, the dollar-based approach provides more predictability and insulation from exchange rate fluctuations.
It is worth noting that the Ministry of Energy (MoE), in its written observations, expressed reservations about awarding a dollar-based ROE to K-Electric, labeling it “unjustified.” The MoE pointed out that FESCO, a government-owned utility, was recently granted only a 14.66% return in rupees.
Nevertheless, NEPRA has suggested that K-Electric’s distribution tariff structure could be revisited and aligned with those of other power distribution companies (DISCOs) once they undergo privatization.