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Thursday March 28, 2024

KP demands net hydel profit under AGN Kazi formula

By Israr Khan
June 10, 2017

ISLAMABAD: The KP government has demanded of the federal government to settle its upcoming years’ arrears of net hydel profit (NHP) under the AGN Kazi formula which the province considers as a ‘legal document’ having the consent of the CCI and the apex court. 

The KP government, during a public hearing held under the chairmanship of Nepra Vice Chairman Saifullah Chatha on bulk supply tariff petition of Wapda hydroelectric, sought 390 per cent increase in NHP from current Rs1.10 per unit to Rs5.38 per unit.

Although, in 2015, the centre and KP governments had come up at an “interim settlement” under which the NHP was increased from Rs06 billion to Rs18.8 billion a year, and which has been worked out at Rs1.10 a unit of bulk electricity supply, but that time, too, the provincial government remained ‘sensitive’ regarding any attempt by the Centre to make changes to the AGN Kazi formula, which it considers a principal document. Earlier, the NHP remained capped at Rs06 billion per annum for 25 years at around 34 paisa a unit.

Wapda also sought an increase in hydel tariff by 98 per cent or Rs3.61 per unit from Rs3.69 per unit to Rs7.30 per unit for FY 2017-18 to meet financial obligations and other expenses. Wapad’s case was presented by Chief Financial Officer, Anwarul Haq, whereas Shumail Butt, Legal Adviser to the KP governments presented the viewpoint of provincial government. 

During the hearing, Khattak said that regarding the net hydel profit (NHP) of KP, the President of Pakistan, CCI and the Supreme Court had already given their verdict, so there is no need to discuss the issue further. Now it is time to implement this verdict of these top institutions and which is the Nepra responsibility. 

He said that the determination of the NHP rate is still pending and after its determination, Wapda would make payment to the KP. Since the decision has been made, so not paying the due amount to the province is unjust.     

KP Chief Minister Pervaiz Khattak, while talking to media persons here, also threatened the Center that “if the province was not provided with its full due share of electricity to the province, then we will knock the doors of the court of law.” 

The CM further said that the provincial government is fully in support of the Centre in eradication of electricity theft in the province, provided the center is serious in this drive. Wapda and the federal government takes are encouraging the theft and takes commission from thieves. He said that if the Centre gives power generation and distribution rights to the provincial government then within 24 hours, we will be ready to take control of Pesco, then there will be no loadshedding in the province and the cost of power will also down to half. 

He further said that the KP electricity demand is 2,500 megawatts, while it is getting from Centre only 1,800 megawatts. Around 80 per cent small hydel power projects and
 the remaining will get complete in next year. KP Chief Minister Pervez Khattak, along with cabinet members, government allies and representatives of opposition parties, was present during the hearing. The chief minister also spoke in the public hearing and accused the federal government of tampering with the minutes of the Council of Common Interests (CCI) and stated that he took up this issue in the previous meeting.

“Every time federal government changes the minutes of the CCI which is why I have to go through the minutes before the next meeting,” he said and added that the decision of the CCI has already been given on NHP and Presidential order is in place, adding that now Nepra should announce its decision in accordance with the Constitution and law. He was of the view that Rs1.10 per unit NHP was temporary.

He also criticised low capacity of transmission system, saying that if transmission system is not improved then how would the government sell electricity in months to come? He said KP is not being given its share of 14 per cent.

“We are just being given 8 per cent and 10 per cent which is unfair to the province. If one part is unable to use it then give to that part of the province where the system is better,” he added.

After the hearing, talking to media, he said, if Nepra accepts the request of KP government, the province will get Rs91 billion in accordance with the NHP formula of 1991. He said, presently projects of 4,000MW are under construction in KP whereas the province is also establishing projects of 600MW. 

The KP chief minister said that the incumbent government is not interested in improving the system, adding that he was ready to go to extremes, but Wapda is not cooperating with him. In reply to another question, he said that Discos are involved in corruption and theft, but he is ready to extend all possible policy support to eliminate electricity theft.

“I am ready to use my entire assembly members to help eliminate electricity theft, but after that it would the responsibility of Disco to sustain it,” he argued.

 Nepra acting chairman informed the chief minister that Nepra team, headed by KP Member Hamayat Ali Khan, will visit the province to familiarise himself with the electricity issues of the province. He said smooth supply of electricity is the constitutional right the province.

The representative of KP government Shumail Butt said that KP’s NHP case has been cleared from Nepra to CCI and president, saying that there is no hitch in implementation of Kazi Formula. He maintained that freezing of NHP is against the spirit of Kazi Formula. He further stated that according to the Constitution, the amount of NHP is the right of the concerned province, but unfortunately Wapda is giving only Rs1.10 per unit to KP whereas the remaining amount is being spent on expensive power projects in Punjab.

Appearing for the consumers, Barrister Asghar Khan argued before the Nepra Authority that Wapda cannot operate under one (1) bulk generation licence as under the Nepra Act, each generation facility has to be separately licensed and it is mandatory for Wapda to provide duly audited accounts or regulatory accounts for public and regulatory scrutiny. He further stated that the consumers of electricity cannot be burdened retrospectively with the arrears of the net hydel profit as this is contrary to the law, constitutional provisions and fundamental rights of the consumers.      

Barrister Asghar Khan submitted at length that net hydel profits have to be calculated in accordance with the express and mandatory provisions of the Article 161 (2) of the Constitution which provides for methodology for determination of net hydel profits which cannot be converted into rate asset base by Wapda or the regulator and charged again to the consumers; that power has been mandated to CCI in accordance with prescribed parameters.

He advocated the cause of the consumers by stating that once the tariff is paid by the consumers, they should not be burdened again with net hydel profit amount which is not a pass through otherwise it will result in unjust enrichment of the public sector entities at the cost of the consumers. He also maintained that any financial transfers taking place between the Federal Government and the Governments of a Province on account of net hydel profit should not be and cannot be passed on to the consumers as net hydel profit is an absolute amount and not based on kWh basis. He also pointed out that the institutions in the power sector are subject to control, directions and supervision of the CCI under Article 154 of the Constitution and being part of Part II of Federal Legislative List.

He lamented the practice of obtaining loans for payment of net hydel profit as being non-prudent utility practice and hence should not be allowed as part of tariff as it would be tantamount to rewarding inefficiency, mismanagement and willful loses of public sector entities.     

NEPRA allowed the revised amount of NHP Rs18.704 billion to the KPK province against previously allowed Rs6 billion as an interim arrangement besides directing Wapda to bring the matter of NHP payable to provinces before the Council of Common Interests (CCI).  

A total amount of Rs.70 billion has been agreed upon on account of arrears of uncapped NHP after reconciliation of mutual claims in the power sector between the two Governments as full and final settlement.

Wapda, after seeking concurrence of CCI through the Ministry of Water & Power, filed a tariff petition for recovery of the arrears in four installments as follows: (i) Rs25 billion in current fiscal year, and (ii) Rs15 billion each in the next three years  Water & Power to adjust NHP payable in next determination in the light of CCI decision

According to CCI decision, Wapda would also pay Rs82.71 billion to Punjab as arrears of NHP. To settle Rs38.12 billion, Wapda   issued irrevocable promissory note of one year duration to the Government of Punjab last year. The issuance of the promissory note was not contingent upon tariff.  The balance Rs44.59 billion will be paid in three equal installments after tariff determination by CCl/Nepra as follows: (i) Rs14.86 billion in FY 2017-18 ;(ii) Rs14.86 billion in FY 2018-19  and ;(iii) Rs14.86 billion in FY 2019-20.

Wapda, in the petition said that projected weighted average cost of capital (WACC) for FY 2015-16 worked out to 16.26 per cent for hydel power stations and 14.10 per cent for hydel power projects as against 14.60 per cent determined for FY 2015-16 for both HPP and HPS.  Other income has been projected  as Rs3oo million  for FY 2017-18 against Rs1.001 billion  determined by Nepra for FY 2015-16. Regulatory revenue gap of Rs32.049 billion has accrued (Rs14.830 billion for FY 2015-16, Rs7.219 billion for  FY 2016-17).

He said cost plus hydel levies margin for FY 2017-18  are  as follows : (i) Irsa charges 0.005 per unit; (ii)  water usage charges (WUC) Rs0.425 per unit; (iii)  NHP Regular(KP) Rs1.10  per unit on generation  of power plants located in KP  and; (iv) NHP Regular (Punjab )  Rs1.10 per unit  on generation of plants located in  Punjab .   

Net generation of 33,598MW for  FY 2017-18 has been estimated keeping in view  the following factors: (i) average of last  five-year  generation; (ii) forecast hydrology  situation  in the  related year;(iii) additional generation  from commissioning  of Tarbela 4th Extenion  and  Golen Gol projects for the proportionate  period at estimated utilisation factors of the generating units  after commissioning.

 Capital cost and tariff of hydropower projects (IPP mode) will be as follows: (i) Tarbela 4th Extension Rs5.2613 per unit; (ii)  Golen Gol Rs13.4737 per unit; (iii)  Keyal Khwar Rs16.1769 per unit; (iv)   Dasu HPP Rs8.4334 per unit; and (v) Diamer Bhasha hydropower project Rs10.5479 per unit.