ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Monday approved amendments to the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 for submission to the federal cabinet, despite objections raised by National Electric Power Regulatory Authority (NEPRA).
The ECC took the decision to approve the amendments proposed by the Ministry of Energy during a meeting chaired by Adviser to Prime Minister on Finance and Revenue Hafeez Shaikh.
Once the Cabinet approves these amendments, the bill will be tabled before the Parliament. These amendments grant power to the government to levy surcharge over and above the tariff determined by the NEPRA. In case of provision of subsidy, the government would send back to the NEPRA to incorporate subsidy amount within one month after determination of tariff by the regulator. The ECC was told that the proposed amendments to the Regulation of Generation, Transmission and Distribution of Electronic Power Act 1997 were aimed at bringing more clarity and precision in the market operation, uniform tariff, timely submissions and determination of quarterly and annual tariffs. The ECC discussed the proposed draft amendments in detail and recommended their submission to the cabinet with a slight modification in the text to make it clearer as per input from some members of the ECC.
As per the structural benchmark criteria under $6 billion Extended Fund Facility (EFF) program of the IMF, the government committed to submit amendments into NEPRA Act before the Parliament. These amendments would reinstate the power of the government to levy surcharges over and above the system's revenue requirements under the NEPRA Act.
End-consumer tariffs in the power sector are determined by the National Electric Power Regulatory Authority (NEPRA), the sector’s regulator. Tariffs are determined on the basis of power purchase agreements (PPAs) signed between producers (IPPs and public Gencos) and a single buyer, the Central Power Purchasing Agency (CPPA), that allow for the calculation of the revenue requirements in the sector to be recovered through the tariffs. The main elements of the end-consumer tariff include: capacity payments, to cover generation companies’ costs related to the design and construction of plants, the generators’ guaranteed return on equity, and debt financing charges. While the regulator determines the tariffs, the notification of tariffs is made by the government.
In determining the end-consumer tariffs, the regulator assumes 100 percent collection and transmission and distribution losses at 15.5 percent, a significant deviation from what DISCOs are able to achieve. This implies that the tariff is set at a level lower than cost recovery, therefore generating a structural shortfall in revenues in the system.
The inefficiencies and distortions in the system have led to the emergence of arrears in the power sector, or circular debt.