ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has refused to treat cold storages as industrial consumers, directing all the Discos, including K-Electric to consider all cold storages under commercial tariff category as already notified in terms and conditions of tariff dated July 25, 2022.
Two members of the authority have written dissenting notes.
Member (Technical) of the view that he disagrees with the majority decision to classify all cold storages under a single commercial tariff, whereas, Member (Law) disagrees with her colleagues’ decision to categorise the cold storage facilities under commercial tariff category.
Nepra hints at revising cold storages’ tariff
Sharing the background, the Nepra, in its decision has stated that the cold storage facilities were never formally classified as eligible for the industrial tariff category.
However, different electricity distribution companies (“DISCOs”) have independently applied varying approaches when billing cold storage facilities. The instant issue came to the notice of the authority when Quetta Electric Supply Company (QESCO) solicited the clarification regarding the applicability of tariff on cold storages.
In response, the authority clarified on March 18, 2021 that the industrial tariff category could apply to cold storage facilities only if they meet the specific conditions outlined in the approved tariffs terms and conditions of DISCOs, such as engaging in processing, value addition, or manufacturing activities. However, if the cold storage is solely used for commercial purposes, without any processing or industrial value addition, then the commercial tariff would apply.
To address the inconsistencies in DISCOs billing practices for cold storage facilities the authority vide decision dated June 2, 2022, which was notified by the federal government through SRO 1168(I)/2022 on July 25, 2022 (“Decision”), placed the “cold storage” under the category of commercial tariff, alongside other commercial establishments such as shops, hotels, private hospitals, and other service-oriented facilities.
Thereafter, many consumers submitted representations/complaints before the authority raising the observations regarding applicability of commercial tariff for cold storages contending that this change adversely affects their billing and operational costs, prompting them to seek a review of the tariff categorisation applied to their facilities.
In order to address the grievances of the consumers and ensure a fair examination of the contentions raised by all parties, the authority decided to hold a public hearing on the matter. This hearing aimed to provide a transparent forum for deliberation, allowing consumers, DISCOs, and industry representatives to present their views and concerns.
Accordingly, a public hearing was held on June 6, 2023, which was attended by all the stakeholders including representatives from DISCOs and the All Pakistan Cold Storage Association.
Meanwhile, many other industrial consumers challenged the decision before Lahore High Court, Lahore (LHC). The LHC, through a consolidated judgment in WP No 50725/2022 (Muhammad Azhar Siddique Vs. Federation of Pakistan, etc) dated February 6, 2023 (High Court Judgment), inter alia directed Nepra not to unilaterally change the tariff classification from industrial to commercial without providing an opportunity for affected consumers to be heard.
The decision of the LHC was challenged by Nepra and other electricity distribution companies before the Supreme Court of Pakistan (SC) in 2023. The Supreme Court, in its decision of October 16, 2023, inter alia directed Nepra is as follows:“Adnan Tariq Advocate High Court has filed CMA no 8311 of 2023 and requested for grant of permission to appear and argue the titled case. The permission is granted.”
He stated that these three CPLA no 1676, 1558 and 1232 2023 pertain to cold storages in respect whereof, the tariff was changed from industrial to commercial, which was assailed before Nepra pursuant to the impugned judgment and Nepra has heard the cases and has reserved its decision, therefore, the remand of the matter to NEPRA should not be disturbed.
The Counsel for the concerned DISCO and Nepra state that they have no objection provided Nepra decides the same independently without being influenced by anything observed in the impugned judgment. Accordingly, NEPRA is directed to decide the same in accordance with law and without in any manner being influenced by anything stated in the impugned judgment.
The authority while examining the matter and perusing the record noted that Sub Section (iv) of Section (2) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (“NEPRA Act 1997”), provides that prescribing consumer category is the mandate of Federal Government. In view of the said, the Authority vide letter dated December 27, 2023 requested the Ministry of Energy (Power Division) and Finance Division for provision of comments in the matter.
In response, the Finance Division solicited certain information from Nepra, which was arranged from the DISCOs and provided to the Finance Division. Finance Division vide letter dated February 01, 2024 further solicited certain information from Ministry of Energy (Power Division) regarding financial implication on Circular Debt Management Plan (CDMP) of proposed conversion of tariff for cold storages from commercial to industrial category.
The comments regarding the applicability of tariff on cold storages were received from Finance Division and Power Division vide letters dated October 30, 2024 and October 31, 2024 respectively. The Finance Division suggested that NEPRA should ensure that any change in the categorization does not have subsidy implications for the Government of Pakistan.
The Power Division submitted that changing of commercial tariff category for cold storages will serve as a precedent for all other commercial offices and establishments enlisted under A-2 category which may lead to further litigation in future by other consumer categories falling under commercial tariff category.
Moreover, if the cold storages are charged industrial tariff instead of commercial tariff, there will be financial implications since change in tariff category will increase the burden on other consumers.
The tariff terms and conditions approved by the Authority specify that the commercial tariff applies to commercial offices and establishments, whereas the industrial tariff is intended for entities involved in manufacturing, value addition, or processing of goods.
Cold storage facilities, however, typically serve as storage units used by grocery chains, food distributors, restaurants, and other retail businesses, primarily for holding goods such as fruits, vegetables, dairy, and meat products. These goods are stored in their original form without any additional processing, transformation, or enhancement — only to maintain freshness until they are ready for sale.
The cold storage facilities essentially function as intermediaries, providing a crucial link between wholesalers and retailers, or between producers and consumers, by preserving perishable items at the required temperature during storage or transit. This enables goods to remain in optimal condition until they reach the final point of sale but does not involve any industrial processes, such as manufacturing, value addition, or product transformation.
Given that cold storage facilities engage solely in these commercial activities, with no industrial or value-added processes taking place, they are more appropriately classified under the commercial tariff category rather than the industrial tariff.
Foregoing in view, the authority has stated that it is of a considered view that cold storage facilities do not fulfil the criteria as laid down in the consumer end tariff determinations for application of industrial supply tariff. In view thereof, all distribution companies, including K-Electric, are directed to consider all cold storages under commercial tariff category as already notified in terms and conditions of tariff dated July 25, 2022.
Copyright Business Recorder, 2024
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