Tuesday November 29, 2022

Net hydel profit: the case of KP

July 29, 2020

The constitution of a modern nation-state is a social contract between the citizens and the state, between the federation and federating units in a federal polity. A breach of this contract, more so when repeated again and again, leads to demand for a new social contract, and at times even breeds separatist tendencies.

The constitution of Pakistan guarantees the right of net hydel profit for the federating units. Article 161 (2) says, “the net profit 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”.

This provision has been followed by an explanatory clause which reads, “for the purpose of this clause ‘net profit’ shall 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 interest, the operating expenses of the station, which shall include any sums payable as taxes, duties, interest or return on investment, and depreciations also elements of obsolescence, and over-heads, and provision for reserves”.

The issue of net hydel profit has bedeviled the relationship between the government of Khyber Pakhtunkhwa and the federal government for over 40 years. In 1986, the then president had constituted a committee under the chairmanship of Mr A G N Kazi, the then deputy chairman planning. This committee included the federal secretary of finance, additional secretary of water and power, and the secretary finance KP (then NWFP) as members to resolve this chronic issue in accordance with the provisions of the constitution.

The committee decided that the net profit would be computed on the basis of what the consumers pay. Calculation would be worked out through backward calculation by deducting the transmission and distribution cost. It also clarified that the loss of one station would not be adjusted against the profit of another station.

In January 1991, the Council of Common Interests (CCI) endorsed the recommendations for past and future calculations. Wapda started paying Rs6 billion per annum on an ad hoc basis from FY 1991-92. In several meetings held during 1993, 1997 and 1998 the CCI assured the provinces that net hydel profit payable to them would be protected even after privatization and unbundling of Wapda. The Supreme Court of Pakistan also endorsed the KCM formula in its judgement in the Gadoon Textile case and declared, “it is evident that CCI has discharged its constitutional obligation as to computation of net profits for payments of the same to the federating unit concerned”.

However, irritants continued to plague the smooth working of the constitutionally protected arrangement regarding transfer of net hydel profit to KP. Resultantly, the issue was again agitated by Mr Sirajul Haq, the then finance minister of KP during the MMA government. This led to the constitution of an arbitration tribunal in 2005 to settle the dispute and calculate the net profit payable to KP from FY 1991 to 2005. Accordingly, the arbitration tribunal issued its award on October 9, 2006.

The tribunal awarded Rs110,101 million payables by Wapda to KP in five installments within three months’ time from the award for the period between FY 1991 and FY 2005. The calculations at that time were made as per the KCM formula. It was in 2015 that the KP government became party to the tariff petition of Wapda in Nepra. In its determination on November 13, 2015 Nepra decided the net hydel profit to KP at a rate of 1.1 KWH on Wapda hydel power stations situated in the province as interim arrangement. An MOU to this effect was signed between KP and the government of Pakistan on February 25, 2016. After this MOU, KP has been paid Rs70 billion as arrears after reconciliation of federal claims. The net hydel profit was also uncapped from Rs6 billion to Rs18 billion per annum.

Even this was an interim arrangement. The matter was referred to the Inter Provincial Coordination Committee (IPCC) by the CCI in its 34th meeting. The IPCC recommended the implementation of KCM. In its 37th meeting, the CCI constituted a committee under the chairmanship of the deputy chairman of the Planning Commission to deliberate upon the issue of determination of net profit and submit its recommendations to the CCI. The main committee constituted a technical sub-committee under the chairmanship of the secretary of the Power Division.

The committees held several meetings and after ascertaining the views of all the parties arrived at the conclusion that the subject of electricity is included in Part V of the constitution. Part V also regulates relations between the federation and the provinces. The committee opined that relations between the federation and the provinces should be conducted in a fair and transparent manner as per the spirit of Part V of the constitution. Technical subcommittee confirmed that the calculations of KP and Punjab are under the original KCM formula of 1985-86. The calculated figures based on the audited generation figure of Wapda are Rs128 billions for the year 2016-17 and Rs137 billion for the year 2017-18.

The calculation for the unaudited figures of 2018-19 is Rs142 billion but it must be mentioned as figures based on unaudited generation figures. This calculation has been endorsed by the committee constituted by the CCI. The KCM methodology has also been endorsed by the Supreme Court, the IPCC, the arbitration tribunal and the CCI repeatedly.

Wapda is a federal entity and is using the water resources of KP. The federal government is the guarantor between Wapda and the provinces. Wapda has collected the amount payable to KP from the consumers but is deliberately depriving a federating unit from its constitutional rights. The federal government has consistently failed to discharge its constitutional responsibility of settling a long-standing dispute of a federating unit with one of its entities. This is not only depriving KP of its constitutional right but is also keeping its people backward. This is adding to grievances, and is fueling discontent and resentment in the province. This will be explosive for a region already hit by militancy, dissenting social movements and poverty for years.

It was expected that the PTI, with a heavy mandate from KP and a second stint in government, would put an end to this injustice by fulfilling its constitutional responsibility to resolve this dispute. Unfortunately, they are dragging their feet and even the regular installments due to be paid to the KP have been withheld. In FY 2019-20, Rs36 billion of regular installments have been deferred to the next financial year. This is simply unacceptable, and a breach of the trust of the people of KP who have voted the PTI to power twice.

Let us be mindful of the fact that the constitution is a sacred document and if it is treated like a piece of paper, it will have grave consequences for the federation. The federal cabinet has a heavy presence of KP ministers and advisers. The speaker of the National Assembly is also from KP. If they do not stand up for the rights of their electorate, history’s judgment of them will be harsh. Those who forego the interests of the people for political expediency are doomed to be consigned to oblivion by history.

The writer is a member of the Khyber Pakhtunkhwa Assembly.

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