Rs1.25/unit hike in consumer tariff also sought: KP govt urges Centre to clear Rs62bn NHP dues

ISLAMABAD: Khyber Pakhtunkhwa (KP) government has asked the federal government to announce second interim arrangement to clear outstanding arrears of Net Hydel Profit (NHP) of Rs 62 billion and increase consumer tariff by Rs 1.25 per unit, sources close to Secretary Finance told Business Recorder.

This demand was placed by the Caretaker Chief Minister Azam Khan in two different letters. One letter was to Prime Minister Shehbaz Sharif dated May 3, 2023 and the second letter to Finance Minister Ishaq Dar on May 15, 2023, in which their attention was drawn toward Article 161(2) of the Constitution which provides for net profits earned from a hydroelectric station to be paid to the entitled province, at a rate to be determined by the Council of Common Interest (CCI).

KP CM places key demands before PM

The Kazi Committee Methodology (KCM) was approved by CCI in January 1991, chaired by then Prime Minister Mian Muhammad Nawaz Sharif. The first payment of Rs. 5 billion was made to the NWFP in 1992.

The KCM was endorsed by NFC in 1988, the Supreme Court of Pakistan in 1997. It was subsequently repeatedly endorsed in CCI meetings dated 1991, 7993, 1997, 1994, 2016, 2018 and 2019.

Realizing the adverse financial situation of Government of KP, the Federal Government on the instructions of then Prime Minister Shahid Khaqan Abbasi announced an “interim arrangement” which was brokered by Finance Minister Ishaq Dar, and duly endorsed by CCI in 2016.

It provided NHP payments @ Rs. 1.10/kWh with 5% indexation in Wapda generation tariff with an effect on consumer tariff of approximately 26 Paisa/unit. Wapda started payment to Punjab and KP accordingly. However, flow of payments is not made regularly as per “interim arrangement” resulting in a shortfall of Rs. 62 billion h FY 2022-23 for KP.

Later on a summary moved by the KP Government for implementation of KCM in true letter and spirit, CCI in its 37th meeting held on April 24, 2018 held under the chairmanship of Prime Minister, Shahid Khaqan Abbasi, constituted a committee under Deputy Chairman Planning Commission “to deliberate upon the issue of determination of rates/net profits in the light of decisions of CCI.”

The Committee presented its report to CCI in December 2019 and stated that: (i) KCM has attained finality in view of numerous unanimous decisions of CCI spanning over forty years and that the issue can no longer be reopened; and (ii) GoP should ensure payment directly to the provinces in order to discharge its Constitutional responsibility.

CCI endorsed calculation of Rs 128 billion as KP share and Rs 52 billion as Punjab share of NHP for FY 2016-77 based on KCM. It constituted another Committee to “propose an out-of-box solution for the payment of Net Hydel Profit to entitled provinces”. On the same analogy, KP has calculated its share which is as follows: (i) 2016-17 – Rs 128.643 billion; (ii) 2017-18 - Rs 137.599 billion; (iii) 2018-19 - Rs 152.596 billion; (iv) 2019-20 - Rs 219.824 billion; (v) 2020-21 - Rs 279.542 billion and 2021-22 - Rs 287.450 billion.

The ‘out-of-box committee’ completed its deliberations in January 2022. Three important points emerged: (i) transfer of hydel power stations to the provinces; (ii) currently water storage component of Wapda development projects is financed out of PSDP whereas the power house component is financed out of Wapda revenues leaving no surplus cash for payment as NHP to the provinces; and (iii) announcement of a “2nd interim arrangement “with an enhanced rate of NHP.

During discussion on power generation component of Diamer Bhasha Dam project in Ecnec meeting dated April 6, 2023, KP representative pointed out the delays in payments of NHP, the need for a 2nd interim arrangement and financing of power component of Wapda projects from Federal funds.

Chairman Ecnec directed the Power Division/Wapda and Chief Minister KPK to hold consultations, convene meeting of the committee and find a solution in light of the Council of Common Interest decision on AGN Kazi formula.

KPK Chief Minister in his letter to Prime Minister maintained that flow of payments is not made regularly as per “interim arrangement” resulting in a shortfall of Rs. 62 billion in FY 2222-23 for KP. He further added that average national tariff has increased from Rs 10/kWh to Rs 34/kWh showing an increase of 340%.

He demanded an announcement of a “2nd interim arrangement” with an enhanced rate of NHP, and requested that a “second interim arrangement” with an enhanced NHP @ Rs 3 per kWh with 10% indexation in Wapda generation tariff with an effect of Rs 1 per kWh on consumer end tariff maybe announced.

Copyright Business Recorder, 2023