IN an interesting development, the federal government has gotten ‘silent’ approval from all the provinces to move forward with its plans to merge the two energy sector regulators — National Electric Power Regulatory Authority and the Oil and Gas Regulatory Authority — into a single regulator, with slightly compromised powers.

This would be part of an energy sector reform agenda that the centre wants to complete during this fiscal and has been made a part of the Annual Plan 2015-16 approved by the National Economic Council (NEC) last month.

Many believe that the energy crisis is not only because of the demand and supply gap but also due to a deeper problem in energy policymaking, governance and regulation. This means the regulation and capacity-addition will not deliver unless decision-making and public-sector management is simultaneously improved.

Mainly because of the merger plan, the government has been dillydallying on filling the vacancies in Ogra, whose chairman had taken a stand against the prime minister office’s desire to step down in the middle of the oil crisis this January.

The induction of the oil member in the regulator’s body was also held back at the last moment. Meanwhile, the only selected candidate for the post of the finance member, although working in a public sector organisation, has sought clarifications before joining a regulator that is on the PML-N’s sunset agenda.

Anwarul Haque — a general manager at Wapda who is also working as Ogra’s acting finance member — is reluctant to sign a contract for the full-time position over concerns that he will be unlikely to complete a three-year term because of the merger. Consequently, Ogra’s incomplete quorum effectively makes it incapable of performing any regulatory function.

The non-approval of the revenue requirements of the two gas utilities for the last three years in violation of the statutory requirements of the Companies Ordinance and the corporate watchdog is just one example. Many see this situation as handcrafted by the government before it comes out with a legal action plan to merge Ogra with Nepra.

The five-member Nepra, led by its chairman Tariq Sadozai, held a consultative session with Finance Minister Ishaq Dar last week over the upcoming plan of action, which is being fine-tuned by the law ministry and some special legal aides to the prime minister like Khawaja Zaheer and Barrister Zafarullah Khan.

Indications are that a few positions in Ogra, like the members for oil and gas, would be added to Nepra, where provincial representations would finally give way to professionals belonging to relevant fields like corporate finance, business modelling, legislation and tariff-setting etc once the incumbent members complete their terms.

Some of these changes would normally require the clearance of the Council of Common Interests (CCI), but the centre currently considers the NEC’s ‘clearance without discussions’ as sufficient ground to go ahead. The challenges would be taken care of when they arise, officials suggest.

The planning commission says a number of consultative meetings with the relevant ministries and divisions have been held over merging Nepra and Ogra, as well as to get a clear definition of the relationship of regulatory action and government policy.

Both Nepra and Ogra have been resisting government pressures for the last 10 years to allow higher system losses and the non-recovery of bills to be made part of the electricity and gas tariffs, under the watchful eyes of the Supreme Court. Consequently, the government has been using its executive authority to impose various surcharges.

On top of the single energy regulator, the new legal framework would also create dedicated appellant tribunals, which would have the power to scrutinise the regulator’s decisions. These decisions can currently be challenged before the high courts and the Supreme Court, which normally uphold the regulators’ decisions rather than the government’s policy desires.

On the administrative side, there would be regulatory advisory committees for the reorganisation of both the regulators during the transition period. These would then keep a check on their performance through federal oversight and ‘merit-based transparent and efficient appointment process’. These powers are currently with the quasi judicial and autonomous regulators without any interference from the government, except in the case of members and the chairmen.

Some other reforms would relate to the tariff-setting regulatory process, which has been the sorest point for political governments trying to build all the inefficiencies into the consumer tariffs, except for resistance by the two regulators.

According to Planning Minister Ahsan Iqbal, the government’s top priority at the moment is to overcome the energy shortfall. And while the merger of the ministries of water and power and petroleum into a single energy ministry was a key point of the PML-N’s manifesto, the government did not find it appropriate to do so owing to the potential teething problems it would have created.

The tariff reforms, the restructuring of K-Electric’s tariff, the delinking of transmission and distribution from the SNGPL and the SSGCL, and the promotion of energy efficiency and conservation would also be taken in hand during the current fiscal year.

Meanwhile, the Annual Plan 2015-16 concedes at the outset that the government would be able to add only 1,027MW of power-generation capacity to the system during the current fiscal.

“The demand and supply gap will remain almost the same (as at present) due to the increase in demand, which is projected to grow at a rate of 4-5pc,” according to the official record.

It would only be possible after 2017-18 that about 10,400MW of power from fresh projects envisaged under the China-Pakistan Economic Corridor would be injected into the grid.

The key areas identified for strengthening the energy sector include governance and regulation, rationalising pricing and energy subsidies, developing energy-finance capability, maintaining efficiency in energy policy, and fast-track investment projects for energy security.

Published in Dawn, Economic & Business ,July 13th, 2015

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