Minority Report was a Hollywood thriller ahead of its time, in which a crime was stopped before it could be committed. In a similar spirit, the National Electric Power Regulatory Authority (Nepra) has approved a ‘recovery loss allowance’ for K-Electric, which has a monopoly over electricity distribution in Karachi.

In such an allowance, the regulator has allowed the utility to embed lack of recoveries within the electricity tariff, charged to the consumer. Effectively, for 2023-24, the regulator allowed a margin of 6.75 per cent to be recovered from consumers who are actually paying their bills.

Effectively, consumers that are being compliant and paying their bills on time are now also responsible for paying for those who are not paying their bills. Moreover, just like in Minority Report, these consumers have to pay ahead of any default, or in pre-emption of any default. It is understandable that there will be some defaults, and some margin has to be built in for the same as the cost of doing business. But the scale of the margin is what matters here.

The range of such a margin within the region, or even globally, is around 1-1.5pc of total receivables of a utility. As a utility settles its monthly electricity bills, a typical receivable cycle would be in the range of 30 to 45 days. Meanwhile, in the case of K-Electric, the same is 6.75pc of total revenue (a much higher multiple of receivables) for the first year of its multi-year tariff.

The unintended consequence of KE’s recovery loss allowance will be a class of perpetual defaults

By allowing recovery of losses that have not been incurred in advance, precedence is set wherein the incentive for a utility to achieve 100pc recovery is simply not there. It is to be noted that many utilities in Pakistan are able to achieve close to complete recoveries in other service areas. It is important to note here that such recovery allowances are in addition to allowances for theft, which are an additional 7-8pc.

Effectively, the compliant........

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