25 October 2004	Monday	10 Ramazan 1425

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ISLAMABAD, Oct 24: The National Electric Power Regulatory Authority (Nepra) has raised objections to the power sector policy guidelines recently issued by the federal government and has warned of a high power tariff crisis similar to the one that resulted from the 1994 power policy.

Informed sources told Dawn on Sunday that Nepra had claimed that the policy guidelines were heavily biased in favour of private sector as were the risk-free arrangements made with independent power producers (IPPs) under the 1994 power policy which bled the national economy for almost a decade.

"Nepra has expressed serious concern that these guidelines provide a commitment on the part of the government regarding grant of licences, location of plants and quantum of power (to be produced and bought) that was the main cause of high tariffs under the 1994 policy," a senior official of the water and power ministry said.

Nepra is of the view that the government's guarantees to investors, including connection to the national grid system, are tantamount to determination of tariff which is Nepra's jurisdiction.

The federal government, however, is of the view that all these matters relate to technological domain and are the sole prerogative of the water and power ministry.

The policy guidelines issued by the government under section 7(6) of the Nepra Act envisage that the federal government will guarantee the terms and conditions of executed agreements like Implementation Agreement (IA), Power Purchase Agreement (PPA), Fuel, Coal or Gas Supply Agreement and Water Use Licence (WUL), including payment terms.

Nepra has been directed to consistently apply the 'revenue requirement' method for tariff calculation with multi-year tariff (MYT) during the agreement period instead of discounting losses and quality of service.

The power regulatory authority has also been asked to determine the MYT in consultation with the power ministry, the Privatization Commission and the Private Power and Infrastructure Board (PPIB).

Tariff models and parameters would be competitive and yet act as incentives for investors. The two-part tariff model comprising energy and capacity payments would be introduced and Nepra would determine hydel and thermal tariff under this method. The tariff structure for renewable and other non-conventional electricity sources would be decided on a case-to-case basis, according to the Ministry of Water and Power official.

Until the establishment of a competitive market, a reasonable return on investment, based on internationally recognized principle of present value and internal rate of return (IRR) will be allowed for new projects on raw sites under a negotiated tariff regime. The rate of return for solicited private sector projects through international competitive bidding will be determined in the bidding process.

All the applicable benchmarks and procedures for indexation of the tariff will be declared upfront by Nepra and applied consistently for tariff determination. Similarly, escalable and non-escalable components of the tariff will be clearly identified in advance.