The National Electric Power Regulatory Authority (Nepra) has uncapped Net Hydel Profit (NHP) of Khyber Pakhtunkhawa from Rs 6 billion per annum to Rs 1.10 per unit as an interim arrangement which will generate Rs 18.740 billion per annum for Wapda which would subsequently be paid to KPK. With this interim increase in NHP, hydel tariff will increase by 21 paisa per unit - from Rs 1.74 per unit to Rs 2.01 per unit.
The determination of Nepra finalised by the Authority headed by Chairman Brigadier Tariq Sadozai (retired) will not be implemented until Ministry of Water and Power issues a notification in the official gazette of Pakistan. Nepra's determination is based on a tariff petition filed by the Water and Power Development Authority (Wapda) and intervention from KPK, including government and opposition led by Chief Minister, M/s Anwar Kamal Law Associates(AKLA), Azhar Masud Panni. Nepra completed the public hearing on September 8, 2015. The Authority did not quote the argument of amicus curiae Barrister Asghar who clearly stated that Nepra is not empowered to review the decision of the CCI. Nepra also ignored the relevant comments of AJ&K representative.
The Authority did not mention Wapda represented by Anwarul Haq, General Manager (Finance)/Acting Member Finance, who presented the case for revision in the applicable tariff from the Rs 1.74/kWh to Rs 3.85/kWh. Panni an intervener presented the grounds of its intervention, which pertained to NHP in the light of the provisions of 1973 Constitution. The government of KPK was represented by Shumail Butt who focused on the issue of NHP giving an overview of the decisions/agreements at different fora in the past. The government of KPK raised its serious concerns with respect to equating the Water Use Charge (WUC) to NHP and argued that these two are distinct provisions and should be treated separately. The Government of KPK was in favour of uncapping the NHP from current Rs 6 billion to Rs 1.10/kWh and requested the Authority to include the revised rate as an interim measure till this dispute is settled with the federal government at competent forum.
Panni in its intervention requested that NHP rate @ Rs 1.10/kWh should not be allowed until approved by CCI. He suggested that Water Use Charge (WUC) as stated in 2002 power policy should be adopted uniformly for all hydel stations of the petitioner and that NHP/WUC of all the petitioner's stations should be proportionately distributed among provinces where these stations are situated.
According to Nepra, the issue of NHP has been deliberated in detail in the previous determinations of the Authority. The Authority determined Wapda's bulk supply tariff for the first time in May 24, 2004. The Authority considered it pertinent to reproduce the relevant portion of the 2004 determination.
The Authority observed that in the explanation given with Article 161(2) of the constitution, hydel profits are treated as distinctly separate from return on investment. The Federal Government has however through the decision taken in the meeting of August 09, 1992 chaired by the Minister of Finance (participated among others by Chief Minister NWFP and A.G.N. Kazi, Deputy Chairman, Planning Commission) ensured a minimum payment of Rs 6 billion to the Government of NWFP, by directing WAPDA to open and maintain a separate account with the National Bank of Pakistan for receipts on account of collection of surcharge as imposed for the year. National Bank of Pakistan was to be advised by WAPDA to release Rs 500 million every month to the Government of NWFP irrespective of the balance available with them in the said account.
According to the decision taken in the meeting the Auditor General of Pakistan was requested to work out the net profit payable to NWFP for the year 1990-91 and 1991-92 on the basis of Kazi Committee formula. Wapda was however allowed by the Federal Government to apply a certain surcharge within the consumer end tariff so as to be able to pay net hydel profits to the respective provinces. The Authority further observed that CCI while deciding to adopt the methodology proposed by the Kazi Committee approved the principle as well as its future applicability but did not consider the need to specify any organisation, committee or any department of the Government to calculate the net hydel profits for future years. The Federal Government or any of its ministries or offices has so far not been able to achieve an agreement on the quantum of net hydel profits and the matter is still being discussed in the meetings of the National Finance Commission. The Authority was not aware as to when CCI would be formulated and the expected date of its decision in the matter. However, maintaining the existing arrangement, as an interim measure, the Authority is including Rs 6 billion in the revenue requirement of Wapda as payment obligation of Wapda in respect of payment of net hydel profits to the WFP province till such time as the same is determined by CCI in respect of each hydroelectric station in operation.
According to Nepra it is clear that Rs 6 billion was allowed as an interim measure which was also concurred by the Federal Government through a letter from the ministry of Finance dated May 6, 2004 The Authority noted that the issue of revision of NHP at a rate of Rs 1.10/kWh was previously raised by Government of KPK in its intervention request of the Wapda hydroelectric petition for bulk supply tariff for the FY 2014 which was then objected by the Petitioner.
Since the minutes of the meeting held on the sidelines of the 8th NFC Award dated March 14, 2013 has been made the basis of request by both the Wapda and the Government of KPK, therefore, the Authority considered it important to mention the actionable item of the minutes which states " after examining the matter and going through record of the proceedings of sub-committee meetings, following decisions emerged out as actionable items: For uncapping, Wapda and the Ministry of Water & Power may immediately approach the Nepra through a tariff petition under the law to include the NHP @ Rs 1.10 per unit together with annual indexation @ 5 percent payable to the Government of Khyber Pakhtunkhawa In the instant petition". Wapda hydroelectric has revealed that it incorporated the revised NHP on the basis of the aforesaid minutes of meeting and upon the instruction of Minister of Water and Power. Government of KPK has also requested the Authority to uncap the NHP in accordance with the aforesaid minutes. The Authority observed that unlike in 2013 WAPDA tariff determination, this time the petitioner has also made this document a basis for the NHP calculation.
Wapda has also informed that such revision in NHP was made at the behest of the federal government through the Ministry of Water and Power. The Authority considered that it has already allowed NHP of Rs 6 billion per annum to WAPDA Hydroelectric in its previous determinations as an ad hoc/interim arrangement as per direction of GoP. The GoP has now decided to increase the NHP payable to Government of KPK at Rs 1.10/kWh which is still an interim arrangement.
Keeping in view the entire scenario the Authority decided to provisionally uncap the NHP payable to Government KPK in accordance with the minutes of meeting held previously with annual indexation of 5% per annum. The Wapda has advised to ensure monthly payment of the NHP to the Government of KPK.
While reviewing the Wapda's NHP working, the Authority noted that Wapda has incorrectly applied the NHP rate on the overall projected generation from all Wapda hydroelectric plants irrespective of their location for the FY 2016. As agreed previously, the revised rate is strictly to be applied to power stations established in the province of KPK. Therefore, while working out NHP for the FY 2016, the Authority has decided to apply the rate of Rs 1.10/kWh on the Wapda hydroelectric power stations in the province of KPK. Wapda requested for application of revised NHP from FY 2016. The Authority therefore, has allowed the revision in NHP amount from the FY 2016 onward. Provinces other than KPK should approach CCI for resolution of NHP issue (if any). The Authority observed that under Article 161(2) of the Constitution, Council of Common Interests (CCI) is the competent forum to determine the NHP payable to the provinces.
The Authority further observed that in-furtherance of Article 16 1 (2) of the Constitution, the CCI approved the Kazi formula for determination of NHP for revenues accruing from generation of power from a hydro-electric station. This was followed by promulgation of Presidential Order No 3, wherein Wapda was made responsible for payment of NHP to NWFP and the federal government was designated as guarantor. Unfortunately, the decision of CCI pertaining to NHP never got implemented. However, in August 1992, on the direction of the then Federal Finance Minister, and under an interim arrangement, a minimum payment of Rs 6 billion annually started being paid to NWFP. In the current Wapda NHP tariff petition, the Authority has once again allowed payment of NHP to KPK as an interim arrangement, at an enhanced rate of Rs 1.10/kWh. The Authority expressed its concern that such interim arrangements cannot be allowed to continue in perpetuity. It has been more than eleven years that the Authority is allowing an interim payment to the petitioner on account of petitioner's obligation of payment of NHP to KPK. There is therefore a need for arriving at a permanent arrangement. The Authority observed that under Section 7, 31 and 45 of the NEPRA Act, 1997 the Authority is vested with the exclusive right to determine tariff, rates, charges and other terms and conditions for supply of electric power services by the generation, transmission and distribution companies set up on various fuels including hydropower. And that, CCI is competent to formulate and regulate polices in relation to NEPRA and exercise supervision and control over it in accordance with Article 154 of the Constitution, including computation of NHP.
The Authority argues that notwithstanding the clear provisions of NEPRA Act, the concurrent jurisdiction of CCI and Nepra over the subject of NHP and keeping in view the past history, conflicting claims, different interpretations and acrimony surrounding this subject and the fact that it is a serious matter of a political nature affecting relations between a province and the federation, the CCI may resolve the matter by issuing policy guidelines to Nepra to determine NHP keeping in view, CCI's earlier decisions, and ensure compliance with the provisions of the Constitution and NEPRA Act, 1997. The Authority therefore has directed Wapda, to bring this matter before the CCI, through the Ministry of Water and Power, to enable Nepra in the determination of next year APDA Tariff Petition in accordance with the policy guidelines and under supervision of the CCI.
With regard to equating Water Use Charge (WUC) with Net Hydel Profit, the Authority is of the opinion that WUC is distinct from NHP and should not be confused with each other. The WUC is a charge for water usage, and has its origin in the power policy of 2002. The Authority deliberated upon the issue of location of Gomal Zam hydel power station (GZHPS) and Warsak Hydel Power Station (WHPS). The Authority observed that the WAPDA Hydroelectric License clearly indicated that GZHPS is located on the right bank of the Gomal River at Khajuri Kach in South Waziristan Agency therefore, it does not fall in KPK and for NHP calculation, this station should be excluded.
Moreover, in the Petitioner's license, WHPS is indicated to be in the province of KPK. The issue of geographical location of Warsak Hydel Power station (WHPS) also came under discussion in Licencee proposed modification of the Wapda hydroelectric in 2008, wherein, the Petitioner sought modifications in the geographical location of WHPS. While deciding on the issue the Authority noted that "...the determination of geographical boundaries of province/country is not NEPRA's mandate and the matter is sub-judice, the Authority directs the parties to resolve the issue before the competent forum. Upon resolution of the same, necessary modification, if any, would be made in the license accordingly..." Since no record has been placed before the Authority from relevant agency that indicates the change in the geographic boundaries of WHPS, the Authority decided to include generation of WHPS in the total calculation of NHP payable to Government of KPK as per the existing arrangement.
Based on the data provided to the Authority, the projected generation of 17,004 GWh on account of hydel power stations situated in KPK, NHP @ Rs 1.10/kWh for FY 2016 works out to be Rs 18.704 billion against Rs 6 billion previously allowed and therefore, the Authority has included Rs 18.704 billion in the revenue requirement of Wapda as payment obligation of Wapda in respect of payment of net hydel profit to the KPK province, as an interim arrangement.
Wapda hydroelectric (petitioner) has been allowed to charge the Central Power Purchasing Agency Guarantee Limited (CPPA-G) within the National Transmission and Despatch Company (NTDC) the two part tariff, for sale of bulk power measured at the bus bar of its hydroelectric power stations connected directly or indirectly to the transmission system of NTDC which are as follows: fixed charge: Rs 731.929 per kW per month of installed capacity and variable charge - Ps. 10.049 per kWh delivered. This tariff is applicable for a period of one year from date of its notification by GoP, after which the following tariff will be applicable: fixed charge: Rs 848.941 per kW per month of installed capacity and Variable charge - paisa 11.656 per kWh delivered.
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