Nepra being pressurised to pass more power losses on to consumers

ISLAMABAD: Amid the re-emergence of circular debt of Rs414 billion excluding the dues of Wapda, the Nepra is being pressurised to allow the government to pass additional 2.8 percent losses per year to the end electricity consumers.

The government has got the said recommendation by the third party of getting into the tariff the 18 percent losses instead of the permissible losses of 15.2 percent, documents displayed at Nepra website reveal. The current line losses stay at 18.9 percent in the system out of which consumers pay 15.2 percent in the tariff and under the new scenario, the Nepra is being forced to pass 18 percent losses to the end consumers with new addition of 2.7 percent loss. However, the Ministry of Water and Power says that one percent loss has been reduced because of high recovery of electricity bills.

Joint Secretary (Power) in the Ministry of Water and Power, Zargham Eshaq Khan, confirmed to The News that the third party has suggested including in the tariff the 18 percent losses and the same has been suggested to the electric power regulator. However, the ministry is not exerting the pressure on Nepra, rather it has suggested as recommended by the third party

When asked if this is the issue that has become of one of the reasons that has led to the government-Nepra wrangling owing to which the government wants to introduce the changes in Nepra act, Mr Khan said that this is not the reason. However, he said that if the 18 percent losses are permitted in the tariff, then the appearance of huge amount in the circular debt will not continue to appear.

The documents show that under the monthly fuel adjustment mechanism, the Nepra was pressurized to transfer Rs406 billion to the government by not fully passing on to end consumers the impact of decrease in fuel prices recorded in the international market, but the regulator put up the resistance before the move.

However, keeping in view the losses and inefficiency in recovery, the regulator accommodated the government to some extent and provided the relief of Rs217 billion out of Rs 406 during the period from March 2015 to December 2016. This means that the regulator extended the relief of Rs189 billion to consumers during the said duration. The government also wanted the more raise in permissible losses but the regulator toeing the line of Supreme Court did not budge before the government’s pressure asking for passing on to the consumers the operation inefficiency of the power sector.

Though the government’s effort to bring all regulatory bodies under the respective line ministries has fizzled out on account of suspension of order by Peshawar and Lahore High Courts, the move by the central government is still on to bring changes in Nepra Act forcing the electric power regulator to abide by the policy guidelines whether they are detrimental to the independence of the regulator.

Under the to-be-amended Act, all the directions from federal government will be binding on the regulator, energy experts opined The wrangling between ministry of water and power and Nepra reached new high when former first wrote letter to the latter which was also made public through media alleging that regulator is responsible for enabling K. Electric to illegally charge Rs62 billion from its consumers under multi-tariff regime. This triggered the tug of war through letters between Nepra and the ministry and it further picked the pace when the ministry highlighted the ‘fact’ that power sector has so far sustained over Rs 1 trillion from 2006-07 because of the Nepra’s decisions. However, dust has now settled ostensibly, but one can easily work out that there is still a lull before storm.

The ongoing squabbling is most likely to further intensify in the days to come but this time the issue is the inordinate delay in submitting yearly petition by DISCOS for the tariff of the ongoing financial year 2016-17. So far the electric power distribution companies (DISCOS) have swindled mammoth amount of Rs125 billion from the end consumers in the last two financial years 2014-15 and 2015-16 just because of the non-issuance of the notification of the tariff determined by Nepra.

Nepra had determined the electricity tariff at Rs10.90 per unit for 2015-16 based on year-on-year adjustment, but the government continued charging Rs12.33 per unit showing that it has been charging Rs1.43 per unit from the consumers in the whole 2015-16, reveals the official documents available with The News.

The government has not so far issued the notification of the tariff owing to which the power distribution companies have made the huge amount of Rs125 billion. The documents showing the bleak picture of power sector scenario further unfold that the consumers have been deprived of Rs65 billion in 2015-16 and Rs60 billion in 2014-15 meaning by that DISCOS have fleeced Rs125 billion from consumers in last two financial years.

Documents also reveal that the regulator has been agitating since long the issue with top mandarins of the government asking for ensuring of relief of Rs125 billion to the consumers that has been eroded because of the non-issuance of notification.

When contacted spokesman of the ministry of water and power said that DISCOS have challenged the tariff in the court of law as according to them it is inadequate and does not cover the actual losses. So saying that the DISCOS have swindled the end consumers carries no weight and this will be decided after the curt will give verdict.

The top officials, however, argued that the ongoing tension between Nepra and the government may touch new high for the delay from DISCOS in submitting the yearly petitions seeking the tariff for 2016-17 fearing if the regulator will mop up the illegal benefit of Rs125 billion they gathered for not reducing the tariff to Rs10.90 per unit. The spokesman says that some o the DISCOS have submitted the petitions seeking yearly tariff for 2016-17.

The in-depth study of the various documents placed on the website of Nepra suggests that there are also factors causing squabbling with the government starting from strictly implementation of monthly fuel adjustment mechanism to year-on-year tariff adjustment,  and from tariff issue of Nandipur power plant to Matriari-Lahore HVDC transmission line.

Coming to Nandipur Power Plant, the documents available with the News disclose that the cost of Nandipur escalated from Rs33 billion to Rs65 billion, but the regulator determined its price as Rs40 billion owing to which the internal rate of return of the project has climbed down from 15 percent to 11 percent meaning by that the government will still have profit but with some loss in profit. However, Mr Zargham Khan said that the investment is the investment either by the government or by the private sector. “Nepra step motherly treats the public sector entities when it comes to the treatment being meted out to the IPPs,” Mr Khan argued saying that it is not logical that the IRR be brought down to 11 percent from 15 percent which is mentioned in the PC-1 of the project. More importantly, Nepra is not allowing the IDC (Interest During Construction) valuing Rs 14 billion in the tariff of the Nandipur power plant, rather it has extended just Rs4 billion instead. “We also want from Nepra the adjustment in O&M (operation and Maintenance) tariffs.

On the issue of the Matriari-Lahore 600 HVDC transmission line with length of 878 kilometers, the documents suggest that earlier cost of the project was $2.1 billion, which has trimmed down to $1.5 billion just because of the Nepra as the PPIB has pitched the petition of the project with $2.1 billion for two times. Since the project was unique and first in its kind in the country, so Nepra, according to the documents hired expert from World Bank and Brazil and in result of their input, the regulator reduced the cost of the project to $1.5 billion and the said Chinese company has to agree on the cost determined by Nepra.  When asked if it can be the reason for more tension between Nepra and the government, Mr Khan said no, not at all and his is the job that the regulator has done.

Another factor of the merit of dispatch order, as per the documents, can be the reason of the Nepra-government rifts as the government is adamant to run the power plants which are generating the electricity per unit at higher cost. Nepra always, in every hearing, raises the issue that CPPA is running the costly power plants being run on RNLG and not involved in running the efficient power plants by changing the merit of economic dispatch order. Mr Zargham Khan says that the government cannot run out of merit and as per the grid code, the efficient power plants are being run to generate the electricity. In the end he said that making the policies is the domain of the government, not the Nepra as the regulator only needs to obey the guidelines.