PESHAWAR ELECTRIC SUPPLY COMPANY LIMITED. Tel: Fax: / OFFICE OF THE FINANCE DIRECTOR PESCO, PESHAWAR

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1 PESHAWAR ELECTRIC SUPPLY COMPANY LIMITED Tel: Fax: / No: 279 /FD/PESCO/CP&C OFFICE OF THE FINANCE DIRECTOR PESCO, PESHAWAR Dated: 26/06/2013 Registrar National Electric Power Regulatory Authority, 2"d Floor, OPF Building G5/2, Islamabad. Subject: TARIFF PETITION FOR FY Enclosed please find herewith Tariff petition for FY along with Tariff Petition fee amounting to Rs.699,540/ after deduction of Income Tax Rs. 44,652/ vide, cheque no dated , copy of Board Resolution and Affidavit duly signed by the undersigned for further necessary action. Encl: As Above. Chief Executive Officer PESCO, Peshawar

2 PEE' HA ELECTRIC SUPPLY COMPANY LIMITED r 1ZIFF PETITION FOR FY Prepared by Peshawar Electric Supply Company Limited June 2013 Head Office, Sakhi Chashma, Shami Road, Peshawar Phone No Fax No

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4 PESHAWAR ELECTRIC SUPPLY COMPANY LIMITED PETITION FOR DETERMINATION OF CONSUMER END TARIFF FOR FY Before The Honourable National Electric Power Regulatory Authority 1. PETITION SUMMARY 1.1 Details of Petitioner Peshawar Electric Supply Company Ltd. Wapda House, Shami Road, Peshawar (referred hereunder as PESCO) was incorporated on 23rd April It was organized to take over all the properties, rights, obligations and liabilities of Water and Power Development Authority (WAPDA). NEPRA granted Distribution License No.07/DL/2002 to PESCO on for electricity distribution in Khyber Pakhtunkhwa jurisdiction of PESCO. 1.2 Representatives of PESCO Brig Tariq Saddozai, Chief Executive Officer Engr. Abdul Latif Khan, Chief Operation Officer Engr. Mussarat Gul, Chief Commercial Officer Engr. Muhammad Fida Khan, Chief Technical Officer / Chief Engineer T&G (O&M) Engr. Aftab Ahmed Sethi, Chief Engineer (Development) Mr. Anwar ul Haq Yousafzai, Finance Director Mr. Khurshid Ahmad Orakzai, DG (HR) 2

5 2. GROUNDS FOR PETITION Respectfully submitted, 2.1 That NEPRA, under the regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (hereinafter NEPRA Act), is responsible for regulating the electricity sector in Pakistan which includes determining the revenue requirement, tariffs and other terms and conditions for the supply of electricity by the Generation, Transmission and Distribution Companies and to recommend the same to the Federal Government for notification. For this purpose NEPRA has laid down certain guidelines and procedures under the NEPRA Tariff Standards and Procedures Rules, ? That PESCO, being a bonafide power distribution licensee, requires adequate revenues in order to perform its obligatory duties prescribed by NEPRA under the NEPRA Act, NEPRA Performance Standards (Distribution) Rules 2005, NEPRA Consumer Eligibility Criteria 2003, Distribution: License of PESCO and other Obligations as determined by NEPRA from time to time. The main source of funding available to the petitioner for their revenue requirements are; (i) generation of adequate revenue through tariff and (ii) funding / borrowings. 2.3 That in order to fulfill and perform its obligatory duties as mentioned above and to ensure financial viability of PESCO by recovering its prudently incurred costs and reasonable return, in order to upkeep and maintain its existing distribution services / network and to support the future investments for expansion of distribution services / network, this petition is being filed for FY through its Chief Executive Officer PESCO who has been duly authorized to sign and file this petition by the Board Of Directors, PESCO in its 80th Meeting held on , placed at AnnexA. 3

6 2.4 In pursuant to amendment in NEPRA Act 1997, PESCO submitted the Tariff petition for determination of Consumer End Tariff for FY on oth,y, J u I NEPRA has determined the tariff of Rs /Kwh for FY on 15th Mar, 2013 against the notified tariff of Rs /Kwh for FY The Tariff determined by NEPRA for FY was not sufficient to meet the revenue requirement of PESCO; hence PESCO filed Review Motion with NEPRA on 27th March, Preadmission hearing of the same was held on 02" May, 2013 but NEPRA has declined the Motion for leave for Review on Subsequently, NEPRA vide letter No. NEPRA/R/TRF212/ dated intimated PESCO that the Tariff Determination for FY cannot be notified in the official gazette because of the order passed by the Peshawar High Court dated , which states that "rise in Tariff should not be made unilaterally by the NEPRA without the written consent of the Provincial Government (Khyber Pakhtunkhwa) because of the mandatory provisions of Article 157 of the Constitution". Accordingly, NEPRA requested the Ministry of Water & Power to hold the notification until the decision is made on the review petition filed by NEPRA against the orders of Peshawar High Court. The decision of the same is still awaited. 2.6 On the writ Petition of Govt. of Khyber Pakhtunkhwa, Peshawar High Court has issued stay order in June 2011 and February 2012 on charging of Fuel Price Adjustment, accordingly PESCO could not able to pass on this legitimate cost to its consumers. PESCO has been hit severely by the orders of the courts and suffered an accumulated loss of about Rs. 35 Billion due to stay on Tariff w.e.f September 2008 to September 2010 and Fuel Price Adjustment since March 2011 onwards. 4

7 a) The detail of stay on tariff is as under: Rupees In Million Month FPA withheld due to Stay order Billing Withheld due to Stay Order Total Amount Withheld Sep Oct Nov Dec Jan Feb Mar Apr May Jun , , Jul Aug Sep09 (79.08) Oct Nov Dec Jan Feb , Mar , Apr , May , Jun , , , , Jul , , Aug , , Sep , , Oct10, Amount withtheld due to stay on Tariff 3, , ,

8 b) The detail of stay on Fuel Price Adjustment is as under: Month FPA withheld due to Stay order Billing Withheld due to Stay Order Total Amount Withheld Nov10 Dec10 Jan11 Feb11 Mar Apr May Jun on FY , , Jul11 1, , Aug11 1, , Sep11 1, , Oct11 1, , Nov Dec Jan Feb Mar Apr12 1, , May Jun FY , , Jul Aug12 (P) (37.60) (37.60) Sep12 (P) Oct12 (P) Nov12(P) Dec Jan Feb Mar Apr May13 Jun13 FY , , Amount with held due to stay on FPA 17, , G. Total (Tariff & FPA) 20, , ,

9 2.7 According to NEPRA (Tariff Standards and Procedure) Rules, 1998 Part III Clause 17 (3) (i) "tariffs should allow licensees the recovery of any and all costs prudently incurred to meet the demonstrated needs of their customers, provided that, assessments of licensees, prudence may not be required where tariffs are set on other than cost of service basis, such as formulabased tariffs that are designed to be in place for more than one year". But contrary to that NEPRA issued conditional notifications of Fuel Price Adjustments specifically for the period July 2012 to March 2013 resultantly in real sense Fuel Price Adjustment was never a determined revenue of PESCO because of the conditional decision of the Authority. Moreover Revenue Recognition as defined in IASB framework, means incorporating an item that meets the following criteria; " it is probable that any future economic benefit associated with the item of revenue will flow to the entity", and "the amount of revenue can be measured with reliability" 2.8 Further it is pertinent to mention here that even though, the Honourable Authority, in Para 14.3 of the Tariff Determination of PESCO for FY acknowledges that Fuel Price Adjustment is a legitimate cost of PESCO and the Authority has also issued the decision in writ petition No. 1772/2011 in favour of PESCO as highlighted in para 9.12 of Tariff Determination yet the court, despite the decision of Authority, has issued stay order on charging of Fuel Price Adjustment to consumers of PESCO. 2.9 Keeping in view the foregoing Authority is requested to revise the monthly Fuel Price Adjustment mechanism to Annual adjustment so as to avoid the legitimate revenue loss to DISCOs due to stay orders Due to delayed notification of Tariff, stay on fuel price adjustment and nonprovision of the required Tariff PESCO suffered a loss of approx. Rs. 29 Billion during FY

10 3 GROUNDS AND FACTS FORMING BASIS OF THE PETITION The grounds and facts forming the basis of this petition are as under: 3.1 Under the 1997 NEPRA Act, NEPRA is responsible for determining tariffs and other terms and conditions for the supply of electricity by the Generation, Transmission and Distribution Companies and to recommend these to the Federal Government, subject to the need to comply with guidelines, not inconsistent with the provision of the NEPRA Act, laid down by the Federal Government. NEPRA is also responsible for determining the process and procedures for reviewing Tariffs and recommending Tariff adjustments. 3.2 This petition is being filed in pursuant to the section 31 (4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, The Distribution Margin of Rs /Kwh determined by NEPRA for FY was not sufficient to meet the PESCO revenue requirement and proposes Distribution Margin of Rs /Kwh for FY on account of increase in Asset Base, the Inflationary trend, Salaries and Maintenance of the Distribution Network etc. 3.4 PESCO strongly feels that 28% T&D losses determined by NEPRA in its determination for FY was unjustified and unrealistic keeping in view the law & order situation in PESCO territory. The actual T&D losses during FY were 33% (provisional), therefore, 31% target of Transmission and Distribution losses for FY may be fixed keeping in view the T&D losses for FY NEPRA has been comparing the losses position of PESCO with that of the other DISCO's. As a matter of fact the load of other DISCOs especially those of Punjab mainly comprises of big loss free consumers which is a major contributing factor towards reduction of % age losses. On the other hand, the main load of PESCO comprises of small domestic consumers which are fed through scattered LT Distribution network and lengthy 11 KV feeders emanating from distantly located Grids. As evidence the loss free consumers of Hattar Industrial Estate has such an effect on the losses of the Hazara Circle that it is very much comparable with those of other DISCO's. The remaining 05 Circles comprises of hard area with 8

11 those of other DISCO's. The remaining 05 Circles comprises of hard area with FATA boundaries and dominating domestic customers, where the feeding arrangements are through scattered and lengthy distribution networks and as such the losses of these circles cannot be compared with those of other DISC'Os. The following are main reasons for not reducing Technical and Administrative losses to the desired level: Lengthy Transmission Lines. Undersize Conductor of the Transmission Lines. Over loaded grid system. High ratio of 11 KV Distribution line to 400 volts line (1:14). Partially damaged distribution transformers. Locally repaired distribution transformers. Very high percentage of Technical losses because of lengthy and out dated distribution and Grid System. 4. OBJECTIVES OF THE PETITION The aim of this petition is to obtain approval for the timely implementation of cost reflective tariffs to yield PESCO's required revenues for FY and its recovery from consumers. The implementation of cost reflective tariffs will benefit consumers and PESCO, as it will; i. Enable PESCO to improve service quality and reliability. ii. Provide adequate funds for the Operation, Maintenance and Expansion of Distribution Network. iii. Ensure the financial sustainability of PESCO. 9

12 5. PESCO'S REVENUE REQUIREMENT A) Power Purchase Price. B) Distribution Margin. C) Financial Charges on Term Finance Certificates (TFCs) D) Prior Period Adjustment. E) Working Capital. F) Enterprise Resource Planning Cost. A) POWER PURCHASE PRICE (PPP): The actual PPP is regulated by NEPRA over the period, thus any subsequent increase / decrease in the PPP determined by NEPRA is adjustable on monthly basis or annual basis as proposed in the petition. The PPP set for FY is Rs /Kwh. B) DISTRIBUTION MARGIN: The sum of the O&M Cost, Depreciation, Provision for Bad Debts and RORB minus Other Income results in PESCO's Distribution Revenue. Dividing this by the total units sold yields the average Distribution Margin per Kwh. i) O&M EXPENSES O&M expenses include Salaries & Wages. Repair & Maintenance. Travelling, Vehicle Running and Other Expenses. Based on the impact of increase in inflation, salaries and other allowances, the O&M Expenses for FY have been projected at around Rs.1.60 /Kwh. a) Salaries & Wages including employee's retirement benefits amounting to Rs. 10,203 million is the major component of O&M expenses. Since PESCO was incorporated as company in compliance with power sector reform policy of Government of Pakistan and the WAPDA employees working in Area Electricity board Peshawar gradually become employees of the company in terms of the Man Power Transition Plan, therefore PESCO had to Maintain the GOP pay scales and the terms of 10

13 employment for the employees which were prevalent in WAPDA. The GOP in its Annual Budget for FY has increased the Pay and Pension of Government 10%. Similarly 5% increase from December 2013 onward is assumed as an effect of Annual Increment. b) Employees Retirement Benefits have been based on the average of annual increase in the last three years audited figures. ii) REPAIR & MAINTENANCE EXPENSES: Repair & Maintenance expenses of Rs.765 million have been % of the net fixed assets that are Rs. 36,987 million. PESCO has to maintain its old and over loaded system in order to ensure uninterrupted power supply to the consumers, moreover cost of material has also increased due to inflationary pressure. Repair and Maintenance budget is required for the following. 1. Replacement of Power Transformers damaged at Grid Stations and controlling Breakers, Isolators etc. 2. Repairs and Maintenance of 3,252 KM Transmission Lines. 3. Purchase of materials for Repair and Maintenance of 87 Nos Grid Stations including 132 KV, 66 KV and 33 KV Grid Stations due to break down. 4. Repair & Maintenance of 747 Nos 11KV feeders. 5. Repair & Maintenance of 32,816 KMs HT Lines. 6. Repair & Maintenance of 43,554 KMs LT Lines. 7. Repair & Maintenance of 55,473 Nos of Distribution Transformers which are frequently damaged due to over loading. 8. Replacement of defective meters. 9. Repair & Maintenance of Office and Residential Buildings. iii) TRAVELING EXPENSES: Travelling Expenses have been projected as Rs. 169 Million for the FY

14 iv) VEHICLE RUNNING EXPENSES: Vehicle Running Expenses has been projected as Rs. 178 Million for the FY PESCO has a fleet of more than 700 vehicles. Most of the vehicles are old and has completed useful life of 10 years & need major overhauling. Financial position of PESCO does not allow us to replace them with new vehicles. We are left with no option but to maintain them. Moreover the cost of POL & parts of vehicle is increasing due to inflation. A part from that PESCO distribution system is spread all over Khyber Pakhtunkhwa Province. v) OPERATING EXPENSES: Other Operating Expenses of Rs. 633 Million have been assumed and include Rent, Rates and Taxes, Utility expenses, Communications, Office Supplies, Professional Fees, Auditor Remunerations, Outsourced Services, Management Fees, Electricity Bill Collection Expenses etc. vi) DEPRECIATION Depreciation for FY is calculated on the basis of the value of existing Assets plus the additions in assets during the FY The assets are depreciated on straight line method as per utility practice i.e 0 %, buildings and civil 2%, Plant and 3.5%, office equipment and mobile plant (@ 10% and other assets (a) 10% based upon these assumptions the figure for depreciation has been worked as Rs.1,779 Million. vii) PROVISION FOR BAD DEBTS: Provision for doubtful debts is made on the basis of ageing formula agreed with the Auditors and approved by BoD PESCO. PESCO has projected provision of bad debts amounting to Rs. 2,512 million for FY which is based on 1.90% of the projected sales to the consumers and 12

15 viii) 95% recovery. PESCO is pursuing the recovery of arrears from its consumers but due to the worst law and order situation in Khyber PakhtunKhwa and nonpayment culture particularly the attitude of consumers residing in areas adjacent to TESCO, Administrative & Political obligations do not allow us to take severe action against the defaulters. Moreover disconnection creates law and order situation in terms of road blockade, blast of transmission towers and attacks on PESCO staff, Grid Stations and offices. Provision for Bad debts during was Rs.5,400 Million; therefore, provision of Rs. 2,512 Million for FY is requested. RETURN ON RATE BASE (RORB): NEPRA allowed 11.25% WACC to PESCO in its tariff determination for FY , the same rate has been taken as the basis for FY and an amount of Rs. 2,766 million is assumed as RORB as per following calculations: Description Rupees in Million FY Projected Gross Fixed Assets In Operation Opening Balance 48,560 Addition in Fixed Assets 6,208 Gross Fixed Assets In Operation Closing Balance 54,768 Less Accumulated Depreciation 17,780 Net Fixed Assets in Operation 36,988 Add: Capital Work in ProgressClosing Balance 9,902 Investment in Fixed Assets 46,890 Less Deferred Credits 20,909 Regulatory Assets Base 25,980 Average Regulatory Assets Base 24,586 Rate of Return 11.25% Return on Rate Base 2,766 ix) OTHER INCOME: The main sources of other income include Interest Income, Sale of Scrape, Amortization of Deferred Credit, Rental & Service Income etc and it is assumed to be 2,240 million for the FY

16 Based on above the projected Distribution Margin (DM) for FY would be as under: Rs. in Million Description FY Projected 0 & M Expenses 11,949 Provision for Bad Debts 2,512 Depreciation 1,779 RORB 2,766 Gross DM 19,005 Less: Other Income (2,240) Net DM 16,765 C) FINANCIAL CHARGES ON TFCs: Ministry of Finance, Govt of Pakistan has arranged through Power Holding Private Limited financing of Rs. 136 Billion on behalf of Distribution Companies to reduce circular debt & to ensure the uninterrupted power supply across the country (copy of letter of Ministry of Water & Power, Government of Pakistan is enclosed at AnnexB). The share of PESCO in Rs.136 Billion TFC issue is Rs.39 Billion. TFC's carry interest of Kibor plus a spread of 2%, moreover interest charges of loan from ADB / ERRA are also included. Accordingly Financial Charges of Rs. 5,720 Million have been assumed to this account for the FY D) PRIOR PERIOD ADJUSTMENT: PESCO has claimed adjustment of Rs. 1,784 Million for FY on account of Energy Purchase Price, Capacity Purchase Price, Use of System Charges, Impact of Extra or Lesser Purchases, DM & Prior Period Adjustment and Sales Mix Variance. Detail is at Form 6 (B). It is pertinent to mention here that NEPRA Determines Quarterly/Annual Adjustments on the basis of targeted losses whereas contrary to that the 14

17 Sales Mix Variance is calculated on the basis of actual losses which is selfcontradictory and needs to be revised and uniform policy may be adopted / established. The authority on one hand is penalizing DISCOs by deducting revenue on the basis of the targeted losses and on the other hand also penalizes in a way by allowing Sales Mix Variance on actual basis which needs to be reconsidered. Adjustment regarding Sales Mix amounting to Rs. 3,285 Million and Rs. 4,986 Million for FY & FY respectively was not considered and disallowed by the Authority because of the abnormality in Actual Sales Mix Data of residential class of consumers. This decision of the Authority has badly affected the already weak liquidity position of PESCO which has been hit by the stay orders of the Peshawar High Court on Fuel Price Adjustment. PESCO is of the view that, if there is any doubt in the data of residential consumers than Sales Mix Variance related to the residential class of consumers should have been disallowed by the Authority instead of flatly refusing full amount of sales mix variance. The calculation of Sales Mix Variance is at Form 6 (B). 15

18 E) WORKING CAPITAL REQUIREMENT: PESCO expect working capital requirement of Rs. 2,837 Million assuming Nine (09) month delay in notification of Tariff based on Nine Month Kibor at 9.5% capital cost plus 3% spiead. The detail is as under: DESCRIPTION AMOUNT Proposed Rate (Rs. /Kwh) Notified Rate (Rs. /Kwh) Difference in Rates (Rs. /Kwh) 3.98 Projected Units for 9 Months of FY (MKwh) 5,702 Revenue at Proposed Rate (Mln Rs.) 101,211 Revenue at Notified Rate (Mln Rs.) 78,517 Revenue Shortfall (Mln Rs.) 22,694 9 Month KIBOR plus 3% Spread (9.5% + 3%) 12.5% Working Capital Requirement (Mln Rs.) 2,837 F) ENTERPRISE RESOURCE PLANNING PESCO is planning to implement Enterprise Resource Planning system at PESCO with the support of USAID. Initial Capital Cost will be borne by USAID while maintenance cost will be borne by PESCO. ERP combines all departments together into single integrated system that runs off a single database so that these departments can share information and communicate with each other. Accurate. timely and reliable information will be available that will not only improve decision making but will also help PESCO in reducing cost. In general following benefits are expected from ERP implementation in PESCO: Improved efficiency and reduced administrative time, effort and cost. 16

19 Timely information & decision support Real time business analysis. Performance evaluation at any instant & Elimination of repetitive activities. Availability of historical data for future analysis & forecasting. Enhanced user interactivity and better utilization of resources. The detailed Cost Benefit Analysis of Enterprise Resource Planning System at PESCO is as under: Note: 11.25% wacc as determined by NEPRA has been used for discounting purposes Capital Cost to be borne by PDP Min. Rs. ERP Software and Implementation Cost IT Infrastructure Cost Min. Rs. Min. Rs. 0 & M Cost of PESCO O&M Cost PV of O&M FY FY FY FY FY OM cost in perpetuity after TOTAL OM 1, Min. Rs. One time Capital Cost to be borne by PDP & M costs to be borne by PESCO for ERP on perpetuity 1, Present Value of 0 & M costs to be borne by PESCO for ERP on perpetuity Present value of future economic benefits using perpetuity 2, NPV of ERP Project for PESCO with PDP Financing 1, NPV of ERP Project for PESCO without PDP financing 1, Future Economic Benefits of ERP Project per annum Mln. Rs. Estimated cost saving due to reduction in Man Hours in PESCO Estimated increase in profitablity due to return on investment in PESCO Total future economic benefits per annum Present value of future economic benefits using perpetuity 2,

20 INVESTMENT PLAN Development Program has been projected as under: Rs. In Million GROSS Provisional Projected DOP 1,115 1,300 RE 3,000 3,355 ELR Installation of TOU / AMR Meters 500 1,500 STG 2,255 1,155 Total investment 7,470 7,760 STATEMENT OF REVENUE REQUIREMENT DESCRIPTION FY Projected Power Purchase Price Rs. Min 108,288 Distribution Margin Rs. Mln 16,765 Financial Charges Rs. Mln 5,720 Total Rs. Mln 132,558 Sale of Units MKwh 7,466 Average Tariff Rs./Kwh RELIEF / DETERMINATION SOUGHT Approval of Category wise Tariff for FY Form 27 Approval of Revenue Requirement for FY Form 20. Summary of Category wise Revenue' Requirement for FY Form 27A. Annual Sale Growth in units (CategoryWise) Annexure C. Annual consumer Growth (CategoryWise) Annexure C. 18

21 7. SUMMARY OF EVIDENCE In support of the petition in hand the standard formats are enclosed as per requirement, Actual Sales Data upto May 2013 is also enclosed at AnnexureD. 8. KEY ASSUMPTIONS TO THE FINANCIAL PROJECTIONS Total Unit Sales: The units projected for FY are 7,466 Million against the expected units sold for FY ; 7,128 Million. Target Transmission & Distribution Losses: The losses have been projected at 31% for the FY against the expected losses of 33% for FY That in view of the grounds and facts mentioned above, it is respectively prayed that while admitting and allowing this petition, the Tariff of PESCO for the FY may very graciously be determined as proposed along with Working Capital requirement, keeping in view the following: a. Ensuring the financial viability of the petitioner for the reliable supply of electricity to its 2.77 Million consumers; b. Timely Determination of Tariff along with its monthly adjustments or annual adjustments as proposed, providing sufficient time to the petitioner for the recovery of the Determined Revenue Requirement; c. Fixing of target of T&D losses by taking a realistic approach; d. Approving the investment plan of Rs: 7,760 Million; e. Allowing Rs: 16,765 Million as Distribution Margin; f. Any other relief. THE PESHAWAR ELECTRIC SUPPLY COMPANY Ltd. Through: Brig Tariq Saddozai Chief Executive Officer PESCO 19

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23 ANNEX A PESHAWAR ELECTRIC SUPPLY COMPANY LIMITED Ph Fax OFFICE OF THE COMPANY SECRETARY PESCO PESHAWAR BOARD RESOLUTION Board of Directors Peshawar Electric Supply Company Limited in its 80th BoD Meeting held on has authorized Chief Executive Officer PESCO to file Tariff Petition for FY with National Electric Power Regulatory Authority (NEPRA). He alongwith other Officers of the Company indicated in the summary of the Petition are hereby authorized to sign individually or jointly the necessary documents, pay the necessary filing fee, appear before the Authority when needed and do all acts necessary for completion and processing of the application. // Certified True Copy (Compan cretary) Dated 03 /6/2013

24 A III Vff,1441P4(Z 1Viri, IVgiFAI.,., AFFIDAVIT I Brig Tariq Mahmood Khan Saddozai S/0 Sardar Muhammad Ishaq Khan, Chief Executive Officer, Peshawar Electric Supply Company Limited (Distribution License No. 07/DL/2002) holding NIC No being duly authorized representative / Attorney of Peshawar Electric Supply Company Limited, hereby solemnly affirm and declare that the contents of this Tariff Petition for FY including all supporting documents are true and correct to the best of my knowledge and belief and that nothing has been concealed. Deponent 2_ Dated: 25/06 /2013 ig Tariq Saddozai) Chief Executive Officer PESC0

25 ..) No. PFJ5(06y2012PHPL Governinent of Pakistan Ministry of Water and Power Power Coordination, Policy and Finance Wing Subject: NON ACCOUNTAL OF TFC LOANS AND MARK UP BY DISCOS. ANNel Islamabad the, 19,' May, 2013 I am directed to refer to IESCO's letter No /FD/IESCO, dated IC cn the above subject and to state that CPPA is supplying electricity and DISCO's are required to pay on account of Power Purchase Price (PPA). DISCOs are not paying full cost of supply to CPPA. Resultantly, Circular Debt in Power Sector has been increasing time and again causing stuckup of System. In FY , obligations towards Power Generators could not be fulfilled. In order to overcome the vicious ccle involving Power Generators, Oil and Gas Companies and Refineries, GOP arranged TFC loans of PKR y 239 billion through PHPL on comparatively low rates to pay of Power Generators involving higher mark up cost. If DISCO's paid CPPA against PPP for onward payments to Power Generators there would be no need to arrange loans. 2. Mark up cost to be recorded in DISCO's books of accounts as the loans were arranged on behalf of DISCO's for non payment / non accountal of mark up on bank loans arranged by PHPL. DISCOs may takeup the issues with NEPRA reuesting to allow them to transfer markup cost through their Tariff determination like i terest income in Tariff. 3. t may be pointed out that liabilities of DiSCOs would not be affected by incorporating loans in their books of accounts as the loans would be replaced with CPPA's payables. CPPA's payables would be reduced to the extent of loans. Equity of the Companies would not be nega:lve and remain same. GOP is the owner of distribution companies being shareholder as well as guarantor of TF loans arranged by it through PHPL. 4. In view of above it is advised to all DISCO's (except QESCO and SEPCO as they have incorporated loans and the mark up costs on these loans in their books of accounts) to incorporate subject loans and mark up on these loans in their book accounts and to accept debit credit notes issued by CPPA in respect of their share in loans and mark up. DISCO's are also advised to make payment of mark up to PHPL for onward payment to_banks under the new meth Ministry dated19113:2013., ism issued by this 5. Compliance report is required to be submitted to thi shall be part of performance evaluation criterion of CEO. rliest b s Chief Executive Officer MEPCO, Multan. Chief Executive Officer HESCO, Hyderabad, Chief Executive Officer IESCO, Islamabad. Chief Executive Officer GEPCO, Gujranwala. For information: Chief Eirecutive Officer FESCO, Faisalabad. Chief Executive Officer LESCO, Lahore. Chief Executive Officer PESCO, Peshawar. (IVRtharnma arhan Sction Officer F) AI/J z CC: a) The Chief Financial Officer, PEPCO WAPDA House Lahore b) The Chief Financial Officer, Power Holding Private Limited Islamabad 1.,. PS to Additional Secretary Ministry of Water and Power. PA to Joint Secretary (Power), Ministry of Water and Power. 3. PA to Deputy Secretary (Power),Ministry of Water & Power Direct() (.43 rot, co 1

26 NO.OF CONSUMERS & %AGE GROWTH Category %Age Growth %Age Growth %Age Growth (Projected) %Age Growth (with projected) (Projected) %Age Growth Domestic Commercial Industrial Bulk Others T/VVe II TOTAL Category 20080e UNITS BILLED & %AGE GROWTH %Age Growth Age Growth %Age Growth (Projected) %Age Growth (with projected) (Units in Million) (Projected) %Age Growth Domestic Commercial Industrial Bulk Others T/We I I TOTAL

27 r's r PESCO Tariff Statement Upto Mav,2013 C at egory., Connec Applicable Rate Billed Amount Subsidy Arneunt led. Distiibu MDI No. Of Load Load lion Fixed Variable Fixed Variable Fixed Variable Charged Sales Sale Mix Consumers (kw1) Factor Losses Cnargss Charges Charges (KW) (MkWh) Charges (%age). Charges Charges (kw) ("/,,age) frs/kw,'m (Rs/kWh Rs. Mln Rs Mln Rs. Mln Rs Min Residential Al UPTC150 Units per month Consumption Exceeding 50 Units Units Units , Units I ABOVE 700 Units ) '1 A16 (03' T Peak 1 i Alb (03) T OffPeak Tern. domestic E1 i (55) , TOTAL DOMESTIC ' Commercial A2 Commercial Tariff ( ,A2b ;05) ' ; A2c(06)T Peak ,26 106; T 3ffPeek emp. ccmi E111 (56) ! (TOTAL COMMERCIAL ' I industrial ' ) Ei lb (09) T Peak ' B113 (09) T Off Peak , 27E a ' : 82612) T Peak , i B26112) T Off Peak ) T Peak ' i Es3(14'; T Off Peak 1, ) , 16.14(17) T Peak : 0.00i (170)1 Off Peak , A E258! Temp I1O.; AL INDUSTRIAL rbuik Supply 1 1.C1a (19) , ' 016 (25) I ]? U1, ;',1c (26', T Peak ' 0.10 I * A ! C , 01c (26) T Off Peak C2a ;28; L (29) T Peak r ) (29., T 011 Peak , , , LC36 38) r Peak I I I , 16 99i.036 f38 T Off Peak ' , 04 TOTAL BULK SUPPLY i : 2139, ! 102Ei.8::' 7 Agricultural 7Wells Tariff D i 1 71 Dla (46) , I T 4 D2 (49.52) , , D2 (47 48) T Peak 8,35 0, i ,,r : D2 (47 48) T OffPeak '. I L, c TOTAL AGRICULTURAL TIWEL COI :7. 1. r Public Light PVT G (72,73) 0 00: ;, ' 10 E9 0 01! t ;Residential colonies H (76,79) , I ,00 ' ! AJK Tariff K1 (35) , ' ; AJK Tariff K1 (36) T Peak E90 00 I 23 4 I ) ! 300.6:11 'pik Tale K. 1 (361 T Off Peak , % ;!Total AJK ; ICLi,mpaily 'total , ! ;

28 FORM 1 Peshawar Electric Supply Company Company Statistics Peak demand during FY MW 2,840 Number of Consumers Number 2.77 Million Area Sq Km 74,521 Circles Number 6 Divisions Number 33 Sub Divisions Number 147 Length of Feeders Km 32,816 Average Length of Feeders Km Maximum Length of Feeder Km 142 Minimum Length of Feeder Km 7 Targe for new connections Number 80,000 Length of High Voltage Transmission lines (132 kv) Km 2,080 Length of STG lines (132, 66 and 33 kv) Km 3,252 Length of Low Voltage Distribution lines (400 V) Km 43,554 Number of HV transformers Number 193 Number of burned down HV transformers Number 12 Number of STG transformers Number As above Number of burned down STG transformers Number Number of LV transformers Number 55,473 Number of burned down LV transformers Number 1,906 Strength Cost Jun13 Jun14 Jun13 Jun14 Provisional Projected Projected Projected Number of Employees 17,804 17,804 A Qualified Professionals Engineers Others B Staff 17,409 17,409 Technical 12,079 12,079 Clerical 1,140 1,140 Non Technical 4,190 4,190 Total 9,042 10,203 1

29 FORM 2 Peshawar Electric Supply Company Profit & Loss Statement Power Balances Projected Projected Units Received [MkWh] 10,639 10,818 Units Lost [MkWh] 3,511 3,352 Units Lost [okage] 33% 31% Units Sold [MkWh] 7,128 7,466 Revenue Sales Revenue [Mln Rs] 60, ,558 Subsidy [Mln Rs] 36,854 Fuel Price Adjustment [Mln Rs] Total Sales Revenue [Mln Rs] 97, ,558 Rental & Service Income [Mln Rs] Amortization of Def Credits [Mln Rs] Other Income [Mln Rs] 2,274 1,149 Total Revenue [Mln Rs] 100, ,798 Wheeling Charges Income (TESCO) [Mln Rs] 1,203 1,980 Operating Cost Power Purchase Cost [Mln Rs] 107, ,289 Wheeling Charges [Mm Rs] O&M Expenses [Mln Rs] 10,437 11,949 Depreciation [Mln Rs] 1,694 1,779 Amortization [Mln Rs] Provision for Bad Debt [Mln Rs] 5,400 2,512 Total Operating Cost [Mln Rs] 124, ,528 EBIT [Mln Rs] (23,174) 12,250 Financial Charges [Mln Rs] 5,972 5,720 EBT [Mln Rs] (29,146) 6,530 Tax [Mln Rs] 2,286 EAT [Mln Rs] (29,146) 4,245 WPPF [Mln Rs] Profit for the period [Mln Rs] (29,146) 4,245 While submitting Quarterly Petitions, this form should be submitted with actual Profit & Loss of of previous quarters and projected profit & loss of next quarter. The Balance Sheet should be substantiated with notes to the accounts. 2

30 FORM 3 Peshawar Electric Supply Company Profit & Loss Statement (201213) Provisional Power Balances Month 1 Actual Month 2 Actual Month 3 Actual 1st Qrt Actual Month 4 Actual Month 5 Actual Month 6 Actual Units Received [MkWh] 1, , , , ,531 10,639 Units Lost pkwhi , ,511 Units Lost Nagel 40.32% 38.89% 32.39% 37.38% 29.06% 28.93% 29.97% 29.31% 31.94% 23.31% 38.27% 31.63% 32.47% 32.47% 32.47% 32.47% 33.00% Units Sold IMKVVhi , , , ,709 7,128 2nd Girt Actual Month 7 Actual Month 8 Actual Month 9 Actual 3rd Qrt Actual Month 10 Projected Month 11 Projected Month 12 Projected 4th Qrt Projected Total Provisional Revenue Sales Revenue pin Rs] 5,782 6,055 5,855 17,692 5, , , ,877 4,732 4,319 4,187 13,239 4,765 5,054 4,621 14,439 60,247 Subsidy [Min Rs] 3,470 3,641 3,591 10,702 3,393 3,128 3,007 9,527 2, , , , ,235 2,514 8,834 36,854 Fuel Price Adjustment Mn Rs] Total Sales Revenue [Min Rs] 9,253 9,695 9,446 28,394 8,596 8,054 7,754 24,404 7,519 6,855 6,656 21,029 7,850 8,289 7,135 23,274 97,101 Rental & Service Income [Mln Rs] Amortization of Defferred Credits ]Min Rs] Other Income ]Min Rs] ,274 Total Revenue ]Min Rs) 9,556 9,934 9,733 29,223 8,871 8,307 7,964 25,142 7,742 7,031 6,853 21,626 8,170 8,628 7,445 24, ,235 Wheeling Charges Income (TESCO) pen Rs] ,203 Operating Cost Power Purchase Cost. ErNvin m 10,189 9,406 8,328 27,922 8,300 8,197 9,547 26,043 10,600 7,446 9,120 27,167 9,209 8,803 7,937 25, ,081 O&M Expenses n Rs] , , , , ,884 10,437 Depreciation [Min Rs] ,694 Amortization [Mln Rs] Provision for Bad Debt [Min Rs] , , ,194 Total Operating Cost [Mln Rs1 11,909 11,285 9,922 33,115 9,641 9,400 10,796 29,836 12,078 8,753 10,390 31,221 10,691 10,374 9,374 30, , Wheeling Charges.. EBIT [Min Rs] (2,241) (1,233) (64) (3,538) (632) (964) (2,742) (4,337) (4,266) (1,657) (3,469) (9,392) (2,425) (1,645) (1,837) (5,908) (23,174) Financial Charges (Min Rs] , , , ,455 5,972 EBT [Min Rs] (2,794) (1,800) (615) (5,209) (1,146) (1,461) (3,225) (5,831) (4,731) _ (2,104) (3,909) (10,744) (2,905) (2,155) (2,303) (7,363) (29,146) Tax [Mln Rs] EAT (Min Rs/ (2,794) (1,800) (615) (5,209) (1,146) (1,461) (3,225) (5,831) (4,731) (2,104) (3,909) (10,744) (2,905) (2,155) (2,303) (7,363) (29,146) WPPF [Min Rs] Profit for the period [min nsi (2,794) (1,800) (615) (5,209) (1,146) (1,461) (3,225) (5,831) (4,731) (2,104) (3,909) (10,744) (2,905) (2,155) (2,303) (7,363) (29,146)

31 Peshawar Electric Supply Company Profit & Loss Statement (201314) Power Balances Units Received [WW1I] Units Lost [MkINh] Units Lost (16.oel Units Sold IMINVh] Projected Month % 687 Month 2 1, % 714 Month 3 1, % 700 let OR's Total 3,249 1,148 35% 2,101 Month % 670 Month % 632 Month % 617 2nd tart's Total 2, % 1,919 Month % 585 Month % 543 Month % 554 3rd Ores Total 2, % 1,682 Month % 558 Month % 573 Month % 633 4th Qrrs Total 2, % 1,764 Total 10,818 3,352 31% 7,466 Revenue Sales Revenue [Min Rs] 12,198 12,677 12,428 37,303 11,896 11,221 10,955 34,072 10,387 9,641 9,836 29,864 9,907 10,174 11,239 31, ,558 Subsidy (Min Rsj Fuel Price Adjustment (Min Rs] Total Sales Revenue [Min Rs] 12,198 12,877 12,428 37,303 11,896 11,221 10,955 34,072 t0,387 9,641 9,836 29,864 9,907 10,174 11,239 31, ,558 Rental & Service Income [Min Rs] Amortization of Def Credits (Min Rsj Other Income [Mln Rs( ,149 Total Revenue Ram Rs( 12,404 12,891 12,638 37,933 12,097 11,411 11,140 34,647 10,562 9,804 10,002 30,368 10,075 10,345 11,429 31, ,798 Wheeling Charges Income (TESCO) Mn Fs( ,980 Operating Cost Power Purchase Cost m e Rs] 10,287 9,508 8,404 28,199 8,375 8,268 9,634 26,277 10,713 8,073 8,940 27,726 8,604 8,542 8,939 26, ,289 Wheeling Charges Mtn Rs] O&M Expenses [Min Rs) , ,362 1, , , ,823 11,949 Depreciation Amortization [Min Rs) (Mtn Rs) ,779. Provision for Bad Debt (Min Rs) ,512 Total Operating Cost [Min Rs] 11,747 11,023 9,893 32,663 9,809 9,632 10,976 30,417 11,997 9,278 10,169 31,444 9,844 9,815 10,345 30, ,528 EBIT [Min Rs] 839 2,057 2,931 5,827 2,465 1, ,740 (1,279) 670 (20) (630) ,252 2,313 12,250 Financial Charges (Min Rs] , , , ,351 5,720 EBT 'Min Rs] 312 1,510 2,395 4,218 1,952 1,463 (145) 3,270 41,728) 254 (444) (1,918) (49) ,530 Tax [Min Rsi , (51) 1,144 (605) 89 (155) (671) (17) ,286 EAT (Min Rs] ,557 2,742 1, (94) 2,125 (1,123) 165 (289) (1,247) (32) ,245 WPPF [Mtn Rs] Profit for the period [Min Rs) ,557 2,742 1, (94) 2,125 (1,123) 165 (289) (1,247) (32) ,245 Where actual figures are available, these should be replaced by the actual figures

32 FORM 4 Peshawar Electric Supply Company Balance Sheet fin million Rupees1 Description Provisional FY Projected FY Intangible Fixed Assets Net Fixed Assets in Operations 32,558 36,987 Total Net Fixed Assets in Operations 32,558 36,987 Capital Work in Progress 8,350 9,902 Long Term Loans to Employees Deferred Cost & Long Term Deposits 8,591 10,215 Current Assets Stores & Spares 3,212 4,220 Trade Debts 26,766 29,984 Advances, Prepayments, Other Receivables 15,765 33,070 Tariff Subsidy (Receivable from GoP) 29,209 17,526 Receivable from Associated Companies 29,363 35,176 Cash & Bank Balances 2,743 2,861 Total Current Assets 107, ,837 Total Assets 148, ,038 Subscribed Equity 18,082 18,082 Unappropriated Profit (155,409) (151,164) Total Equity (137,327) (133,082) Long Term Liability Security Deposits 1,937 2,227 Employee Retirement Benefits 12,311 13,916 TFCs & SUKUK Deferred Credits 17,716 20,909 Total Long Term Loan 49,719 51,219 Total Long Term Liability 81,682 88,272 Current Liability Current Maturity on Long Term Loans Subsidy Received in Advance from GoP Provision for Taxation Payable to NTDC 193, ,568 Creditors, Accrued and Other Liabilities 10,759 12,280 Total Current Liability 203, ,848 Total Liabilities and Commitments Total Liabilities and Equity 148, ,038 While submitting Quarterly Petitions, this form should be submitted with actual balance sheet of pre% and projected balance sheet of next quarter. The Balance Sheet should be substantiated with notes t 5

33 FORM 5 Peshawar Electric Supply Company Cash Flow Statement fin million Rupees' Description Provisional FY Projected FY Average Monthly Demand Index (MDI) [MW] Units Purchased [GWh] 10,639 10,818 Transmission Losses (132 kv) [GWh] Distribution Losses [GWh] Units Sold to Customers [GWh] 7,128 7,466 Average Tariff Required [Rs/unit] Average Tariff Existing [Rs/unit], Tariff Difference (Rs/unit] Revenue from Sales 60, ,558 Collection from Required [%] 92% 95% Inflows from Operations Collection from Current Sales 55, ,930 Prior Year Recovery Total Inflows from Operations 55, ,308 Outflow from Operations Payment for electricity (to CPPA) 112,851 98,813 Distribution Service Cost (=DMC), 9,237 10,499 Total Outflow from Operations 122, ,312 Surplus/Deficit from Operations Inflows from Other Sources Capital Contributions 3,675 4,155 Consumer Security Deposits Other Incomes 2,397 1,279 GOP Subsidy (Actual and Estimated) 31,029 11,684 Long Term Loan / Redeemable Capital 40,663 1,500 Total Inflows from Other Sources 77,966 18,908 Outflow Others Financial Charges 5,659 5,556 Repayment of Long Term Loans Investment Program 7,470 7,760 Working Capital/other Changes (2,932) 22,305 Total Outflow Others 10,510 35,785 Surplus/Deficit Others Total Inflows (Operations + Others) 133, ,216 Total Outflows (Operations + Others) 132, ,097 Opening Balance 1,865 2,743 Surplus/Deficit for Fiscal Year Deficit from Financing/Loans Closing Balance 2,743 2,861 6

34 FORM 6 Peshawar Electric Supply Company Power Purchase (Actual for the Last Corresponding Period) Demand & Energy Month 1 Month 2 Actual Actual Month 3 Actual (Provisional) Month 4 Month 5 Month 6 Actual Actual Actual Month 7 Actual Month 8 Actual Month 9 Actual Month 10 Actual Month 11 Actual Month 12 Projected Total Projected Units Received [MIOAlb] 1,100 1, ,639 MDI [MW] 2,139 2,129 1,895 1,863 1,866 1,944 1,808 1,718 1,784 2,067 1,966 2,060 1,937 Energy Purchase Price [Rs/ kwh] Capacity Purchase Price [Rs/ kw/ M] , Transmission Charge [Rs/ kw/ m] Power Purchase Cost Energy Charge [Mln Rs] 8,032 7,420 6,538 6,347 6,145 7,536 8,674 5,626 7,402 7,098 6,864 5,952 83,634 Capacity Charge [Mln Rs] 1,972 1,804 1,627 1,793 1,892 1,843 1,771 1,673 1,565 1,933 1,770 1,809 21,451 Transmission Charge [Mln Rs] ,997 Adjustment ** [Mln Rs] Total Operating Cost [Mln Rs] 10,189 9,406 8,328 8,300 8,197 9,547 10,600 7,446 9,120 9,209 8,803 7, ,081 FORM 6 ( A) Peshawar Electric Supply Company Power Purchase (Projected) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total Demand & Energy Units Received [MkVVh] 1,115 1,132 1, ,818 MDI [Mw] 2,142 2,132 1,897 1,865 1,869 1,947 1,811 1,721 1,786 2,070 1,969 2,063 1,939 Energy Purchase Price [Rs/ kwh] Capacity Purchase Price [Rs/ kw/ M] , Transmission Charge [Rs/ kw/ M] Power Purchase Cost Energy Charge [Mln Rs] 8,148 7,537 6,628 6,438 6,233 7,640 8,802 6,267 7,236 6,510 6,619 6,969 85,027 Capacity Charge [Mln Rs] 1,955 1,788 1,613 1,777 1,875 1,827 1,756 1,658 1,551 1,916 1,754 1,793 21,262 Transmission Charge [Mln Rs] ,999 Adjustment ** [Mln Rs] Total Operating Cost [Mln Rs] 10,287 9,508 8,404 8,375 8,268 9,634 10,713 8,073 8,940 8,604 8,542 8, ,288 1