ISLAMABAD: The government exercised on Friday its ‘sovereign power’ to withhold a 20 per cent reduction in electricity tariff approved by the National Electric Power Regulatory Authority (Nepra) for all distribution companies, except K-Electric, to fund interest payments of dues paid to private producers last year.

After a public hearing on Friday morning, Nepra approved a reduction of Rs2.97 per unit in tariff for a month under the automatic monthly fuel adjustment on account of a decline in prices of furnace oil in the international market and its reduced consumption in November.

Within hours, the water and power ministry issued a statement saying “an amount of Re0.60 per unit was required to pay for the power sector finances”.

It said Nepra had determined “fuel adjustment charges to be Rs2.967 per unit out of which Rs2.367 will be passed on to the consumers of nine distribution companies” under the power ministry.

A former member of Nepra was of the opinion that the government had no powers to change fuel adjustment charges under the Nepra Act because it was a direct pass through cost of fuel always notified by the regulator.

He said any aggrieved consumer could challenge the decision in court which would set it aside immediately because the Nepra Act and a subsequent empowerment to the regulator through a finance bill were very clear.

“Legally, it is not possible to divert a relief in fuel prices to debt servicing. This is not a cost of service,” he said, adding that mainly because of this hiccup Nepra had previously refused to include the cost of past debt servicing in the cost of service. As a result, he said, the government had to impose two equalisation surcharges of 30 paisa and Rs1.50 per unit in October.

Acting Water and Power Secretary Younas Dagha told Dawn last week that the law did not allow withholding of any part of the fuel adjustment and the government was bound to pass on the cost of all fuels to consumers irrespective of their increase or decrease.

On Friday, Additional Water and Power Secretary Omer Rasul said that “it is sovereign prerogative of the government to have a last decision” on how much increase or decrease in tariff would be passed on to consumers.

He said Nepra had the powers to determine schedule-1 of tariff, on the basis of which the government had to take a decision on schedule-II, which ultimately applied to consumers.

But the former Nepra member argued that the government discretion on schedule-I and II pertained only to base tariff which involved capacity payments, operation and maintenance cost, inflation, insurance and debt servicing.

The fuel cost was a direct pass through which was a domain of Nepra, he said, adding that the regulator’s website was full of notifications on fuel price adjustment directly addressed to distribution companies for implementation.

In reply to a question, Omer Rasul said the government had very limited fiscal space to meet circular debt because some of the independent power producers had recently served notices to call sovereign guarantees.

He said it was not possible to run the government after transferring the entire relief to consumers. “From where we will arrange funds when nobody is ready to pay taxes,” he wondered.

He said people would have to bear the impact of overdependence on independent power projects run on expensive imported fuels since the 1990s. He said he was not aware of any amendment to Nepra Act enacted through the finance bill which gave full powers to the regulator on fuel adjustment charges, instead of the government.

Asked if the federal cabinet or the ECC had taken the decision to withhold a part of the relief in fuel charges, Mr Rasul said the prime minister himself headed the cabinet committee on energy and presided over weekly meetings to take all decisions relating to the energy sector.

Earlier, the Central Power Purchase Agency had sought Rs2.92 per unit reduction in tariff, having a total impact of Rs17 billion.

After the public hearing and internal calculations, Nepra found the benefit of Rs19 billion and worked out Rs2.97 per unit for consumers. In addition to this, consumers were to get a relief of another 49 paisa per unit (a total of Rs3.46 per unit) because of a proportionate decline in general sales tax.

But the government effectively withheld a relief of about 70 paisa per unit.

Published in Dawn December 20th , 2014