Operational modalities sought to supply electricity to SEZs

ISLAMABAD: The government has directed power Distribution Companies (Discos) and developers of Special Economic Zones (SEZs) to work out operational modalities to supply electricity to industrial units within the Zones under CPEC as there is no bar on providing electricity.

These recommendations/ directions were issued in a recent meeting held in Board of Investment (BoI) under the chairmanship of the Additional Secretary.

Official documents available with Business Recorder reveal that BoI noted that in consequence of the meeting held on July 1, 2022, under the chair of Minister for Planning, Development & Special Initiatives, on the matter of provision of utilities inside the SEZs, to resolve the legal contention “whether the utility companies can provide connections directly to the zone enterprise or should the developer be made responsible for inside provision/ distribution of gas to the zone enterprises and collection of bills”, a meeting was held to deliberate on the matter and arrive at a workable solution.

The meeting was attended by all stakeholders, including representatives of the Ministry of Energy (Power Division), relevant Discos, NEPRA and zone developers of CPEC SEZs.

The purpose of the meeting required the participants to keep the objectives of SEZ law in mind before taking any stance on whether or not electricity can be supplied/ distributed inside the SEZ by Discos or otherwise. It was noted that a meeting on similar lines for provision of gas inside the SEZ had already been held with OGRA and gas companies, wherein the solution proposed by BoI was adopted. The Chair then asked Director General (SEZ) BoI to brief the house on the issue, as well as, BoI’s proposed way forward.

DG SEZ Abdul Samie briefed the meeting that when the SEZ Act was made, energy shortfall was faced by the country which was impacting the industry, so to provide preferential industrial infrastructure, it was decided that utilities will be made available by the government to the zero point of the SEZ.

However, it has come to light that the stipulation that was meant to safeguard the SEZs and guarantee them with provision of required utilities to promote industry is being misinterpreted to limit the jurisdiction till zero point. He apprised the meeting that the following questions need to be answered to proceed further: (i) whether section 27(1) & (Il) bar the Discos to provide/ distribute/ supply electricity only till zero point and not inside the SEZ;(ii) whether NEPRA’s licence or laws for that matter restrict Discos to provide/ distribute/ supply power to zone enterprises inside the SEZ, till the time developer gets license for the same; and (iii) what could be the most efficient mode of distribution for the zone enterprises?

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As regards, interpretation of SEZ Act 2012, it was noted by DG SEZ that SEZ Law does not bar Federal Government from ensuring provision of utilities inside the SEZ.

DG SEZ briefed the meeting that there is nothing in the SEZ law prohibiting Discos to distribute/ supply/ sell electricity inside the zone to enterprises, and all SEZs are within their territorial jurisdiction to ensure the same until the time the developer chooses to get NEPRA’s licences. Treating developers as bulk consumers would entail extra costs that will ultimately be shifted to zone enterprises rendering them less competitive vis-à-vis the units outside.

Whereas, in terms of section 35(1) of the SEZ Act 2012, the Act incentivizes, in addition to generally applicable legislation; therefore, under general legislation, if a unit outside is getting electricity, so would the units inside the SEZs. Nothing in the SEZ Act 2012 can be interpreted to take the SEZ investors at a disadvantageous position.

He apprised the meeting that under current legal framework there could be two modes for ensuring distribution of electricity to the units inside an SEZ: (i) through One-point purchase, where the zero point is treated as one point for purchase of electricity by zone developer in bulk, wherein inside distribution has further two modes;(a) distribution inside by zone developer, which would require that zone developer has distribution licence and supplier licence of NEPRA;(b) distribution inside by DISCOs through O&M; and (ii) through distribution by Discos directly to zone enterprises. Under this mode the management of tariff may be done by the Discos; however, considering the role of developer in SEZ planning, the load management would have to be done by the zone developer.

He proposed that regardless of the fact which mode of distribution is adopted, BoI proposes the following way forward: Zone enterprises working inside may not be taken at a disadvantage. Until a developer gets license from NEPRA, DISCOS should continue to supply electricity to zone enterprises operating inside the SEZ. Infrastructure cost for inside network should be borne by the developer.

Zone enterprises should not to be charged at a tariff higher than the industry outside. To enable efficient utility planning, connections be provided in consultation with the developer.

DG NEPRA clarified that under the current legal framework, all SEZs are within the territorial jurisdictions of the concerned Discos. He said that NEPRA has two kinds of licences for provision of electricity: distribution licence and supplier licence. The Discos have both these licences that allow them to distribute electricity, as well as, bill for electricity supplied.

DG NEPRA suggested that the developer should be cognizant that billing should remain with the Discos to ensure that government subsidies in the form of preferential tariff for certain industries are efficiently administered and the end consumers are billed as per the tariff that is applicable to them.

On a query regarding provision of electricity inside the zone while grid stations are under construction, DG NEPRA advised the Discos to provide the connections to the zone enterprises through existing grids and feeders, and once dedicated grids have been constructed and made operational, shift such connections to the Zone’s grids.

Whereas with regards to the grid construction agreements and the need to define the conditions for distribution therein, considering that developers have yet to decide whether to get distribution licence or not and the fact that SEZs tax national assets, the lack of distribution license should not bar the Discos from undertaking the grid construction work as per timelines. However, developers should approach NEPRA and apply for the licences, if required, so that these matters could be resolved, simultaneously.

After undertaking detailed discussions, the following recommendations/ decisions were made to move forward: (i)there is no bar, under SEZ Act 2012 or NEPRA law on Discos prohibiting them from providing electricity inside the zone; (ii) until developer gets a licence for provision/ distribution/ sale of electricity inside the zone, the zone enterprises will be provided electricity connections by Discos; (iii) grid construction shall not be affected due to lack of distribution licence with zone developer; (iv) operational modalities may be worked out by the Discos and developers for efficient provision of services to zone enterprises; and (v) tariff applicable inside the SEZ shall not be higher than the industrial tariff applicable outside the SEZ.

Copyright Business Recorder, 2022