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November 25, 2017

Power consumers fleeced of Rs277 billion — II


November 25, 2017

Mr Khan, in his note, said Nepra is allowing Wapda to operate 19 existing and build 5 new hydro power stations under one bulk supply license, since 2004. Wapda has been allowed to charge a single tariff that is based on the average cost of all the power stations and projects taken together. It must be appreciated that each existing power station has a different operation and maintenance cost which is financed through a distinct capital structure i.e. debt and equity. A bulk tariff mixes the unique cost profile of each power station into one basket which is against the principle of transparency. He said in his opinion, each of 19 stations should have a separate license for which NEPRA should allow a tariff that is representative of its specific and unique prudent operating costs. Similarly, the 5 future power stations especially, the bigger ones like Diamir Basha, Dasu and Neelum Jhelum should be given separate licenses and tariffs. This is absolutely essential for the sake of transparency, efficiency, accountability and effective monitoring of the performance of each hydel station. Under the existing arrangements inefficient and loss making stations are being subsidized by low cost or profit making stations.

On the issue as to whether NHP can be converted into a fixed rate of Rs1.10 per kwh keeping in view clause 161(2) of the Constitution, Mr khan says that Article 161(2) of the Constitution provides “The net profits earned by the Federal Government, or any undertaking established or administered by the Federal Government from the bulk generation of power at a hydro-electric station shall be paid to the Province in which the hydro-electric station is situated.

He explained that “net profits” should be computed by deducting from the revenues accruing from the bulk supply of power from the bus-bars of a hydroelectric station at a rate to be determined by the Council of Common Interests, the operating expenses of the station, which shall include any sums payable as taxes, duties, interest or return on investment, and depreciation and element of obsolescence, and over-heads, and provision for reserves.

There is therefore no provision in the Constitution for a pre-determined fixed rate of

NHP, to be applied uniformly across the board, to all hydro power stations without taking into consideration the revenues or expenses of that particular station. Moreover, by applying a notional fixed NHP rate, certain loss making stations would also be shown generating a net profit which would not be a true reflection of the state of affairs of that station. At best, a fixed NHP rate, as in the instant case, can be applied only as an interim arrangement and not as a permanent dispensation.

Mr Khan’s note also points out that the CCI in its meeting dated 29.02.2016 made the decisions according to which CCI gave its concurrence to the MoU signed between Government of Pakistan and Government of Khyber Pakhtunkhwa on 25th February 2076 specially directing WAPDA to file a Tariff Petition as agreed in the MoU.

Punjab will submit their claim to Ministry of Water and Power for consideration in the light of said MoU. In the light of para (iii) of its decision dated 29.02.2016, the CCI approved the summary of the MoW&P on the subject “Settlement of Net Hydel Profit (NHP) issue between Wapda and Government of Punjab” in its meeting dated 16.12.2016. The CCI, inter alia, approved the proposal of “payment of NHP to Government of Punjab @ 1.10 per unit on the analogy of Government of KP, generated from Hydel Power Stations located in Punjab for the FY 2016-17, and onwards”.

The Chief Minister, KP, during CCI meeting dated 16.12.2016, expressed reservations on the wordings of the minutes and asked for deletion of the words “and onwards”, as these referred to a “temporary / interim arrangement and not permanent arrangement to cover coming periods.” The CCI agreed to delete the words, “and onwards”. It is abundantly clear from the above, that the ground on which the words, “and onwards” were deleted was on the basis of the reservations expressed by the Chief Minister, Khyber Pakhtunkhwa, emphasising the temporary / interim nature of the arrangement which could not be construed to be a permanent arrangement. Any attempt to use deletion of the two words, “and onwards”, as sufficient grounds for disallowing NHP charges as claimed in Wapda tariff petition 2017-18 is a complete misperception of the spirit of the CCI decision and could be construed as a classic case of “lawless legality”, where the spirit of the law is not taken into consideration, while interpreting the law. It may be added that no stakeholder, at any stage whatsoever of the tariff proceedings has ever asked for stoppage of NHP payment. Neither the petitioner nor any of the interveners, commentators or Ministry of Water & Power asked for discontinuation of NHP payment. This would also amount to a violation of Article 161(2) of the Constitution, which provides that NHP “shall” be paid to the provinces. Being a mandatory stipulation of the Constitution, NHP has been regularly paid to KPK ever since 1991 — albeit, at a provisional and capped amount of Rs. 6 billion per annum.

The Authority had earlier also expressed its concern at para 64 of tariff determination for FY 2015-16 that such interim arrangements cannot be allowed to continue in perpetuity and expressed the need for arriving at a permanent arrangement.

On the issue as to whether Constitution intents and prescription of determination of NHP and its collection can be modified by the CCI, Federal Government, Wapda or Nepra, the note responds saying that the answer to this issue is very simple. The “Constitution intent and prescription of determination of NHP and its collection” is very clearly and unambiguously spelt out in Article 161(2) and its Explanation. Any modification or amendment of the Constitution is the exclusive domain of Parliament. The CCI, federal government, Wapda or Nepra have no jurisdiction to modify the “intent and prescription of determination of NHP” as provided for in the Constitution.

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