Nepra law: Thus far, no amendments introduced

The government has not yet introduced in parliament proposed amendments to the Nepra Act which was one of the key benchmarks of IMF's second quarter review, well-informed sources told Business Recorder.

According to the agreed benchmarks the government has to submit to Parliament amendments to the Nepra Act by end of December 2019 to ensure full automaticity of the quarterly tariff adjustments and eliminate the gap between regular annual tariff determination and notification by the government.

However, Power Division has fulfilled two benchmarks - notified the FY2020 electricity tariff schedule as determined by the regulator and prepared a comprehensive circular debt reduction plan in collaboration with the international partners.

The sources said, on December 6, 2019, Secretary Finance presided over a meeting on IMF's EFF 2019 second quarter performance criteria structural benchmarks policy actions which was attended by all the concerned ministries/departments.

According to sources, Power Division submitted documentary evidence about implementation on two structural benchmarks. However, amendments to the Nepra Act are yet to be introduced in the Parliament.

The sources said, circular debt management plan includes measures to reduce the existing flows. The plan, however, also proposes some measures as to how to reduce the stock of circular debt. For selected public sector companies' collections are planned to increase by 5 percent from FY2020 and average losses are planned to be reduced to 16.01 percent from existing level of 17.7 percent through efficiency gains. Collection from government customers will be rationalized and subsidies will be on actual basis and paid according to schedule.

The GoP will continue to take measures to rationalize the tariff which covers all costs including debt servicing and ensures sufficient budgetary provision in subsidies. All reduction in circular debt stock through borrowings will be reflected as borrowing in Power Holding (Pvt.) Limited, while lowering the cost of borrowed capital.

The following are the issues addressed by CD Plan: (i) sector efficiencies; (ii) discrepancies in tariff regime; (iii) inadequate fiscal allocations and government policy measures; and (iv) debt servicing of Power Holding (Pvt.) Limited loans.

According to sources, the CD plan assumes: (i) improving power distribution collection in selected Distribution Companies (Discos) annually in the range of 3 percent to 5 percent that will reduce circular debt flows by Rs 334 billion over the plan period (FY 2020-FY 2023); (ii) five Discos to achieve 100 percent collection over the plan period; (iii) reducing line losses in selected Discos annually by approximately 1 percent that will provide fiscal space of Rs 118 billion over the plan period; (iv) annual projected generation and sales of Rs 136 GWh and 111 GWh respectively by FY 2022-2023; (v) rationalization of subsidy allocations to bring it to a previous agreed level of 0.4 percent of GDP from existing level of 0.6 percent of GDP; (vi) annual reduction of running and permanent defaulters by Rs 78 billion; and (vii) reducing power sector annual flows to less than Rs 75 billion per annum (FY2022-2023) from the level of Rs 465 billion per annum (FY 2018-19).