Following in the footsteps of some businesses by embroiling regulators into litigation in order to forestall penalties and losses, the government is challenging the decision of the power regulator to block the revenues flowing out of utility companies to the consumers.

In the intervening period, the government is seriously working to reduce the National Electric Power Regulatory Authority (Nepra) into a subservient body of the ministry of water and power. This is being envisaged through an amendment in the law to follow government instructions in its determination.

A summary for the Council of Common Interest (CCI) has been moved which is unlikely to be cleared by the provinces because they had previously blocked a similar move during the PPP government.

The power regulator has written, time and again, that it had allowed all prudent costs in the tariff, and that consumers could not be punished for the omissions of the project authorities

The Nepra comprises four members, nominated one each by the provinces, and a chairman appointed by the federal government through a competitive process, to balance the interest of the consumers, the government and private investors.

Various business groups like cement, banks, telecom companies, fertilisers, textiles and poultry etc had previously blocked penalties imposed by the Competition Commission of Pakistan through court stay orders. Some of these cases initiated many years ago are still far from a conclusion.

It was, however, a rare move when the government-owned power distribution companies approached the Islamabad High Court a few weeks ago, seeking a stay order against tariff determinations issued by the power regulator, that entailed a Rs2-3 per unit (kwh) reduction in average tariff, involving a total amount of Rs227bn. The court issued the stay orders.

These utilities adopted the judicial route after exhausting all avenues (seeking review and reconsideration applications) available in the Nepra law, but failing to convince the regulator to pass on, to the paying consumers, the higher impact of system losses, inefficiencies and theft.

Under the Nepra law, the government is required to seek review of tariff determination based on any fresh ground, or in case a critical element is missed out by the regulator within 15 days, or else notify the tariff. After the Nepra rejected review and reconsideration petitions, the government, instead of notifying the tariff for fiscal year 2015-16, adopted to take the route of the Islamabad High Court.

On the basis of various benchmarks set many years ago in consultation with the power companies, the Nepra determination entailed a yearly relief of Rs105 on account of the fuel cost of power generation and about Rs123bn on account of less recovery, theft and losses. This meant the paying consumers have been denied a monthly relief of about Rs19bn.

In fact not only the Nepra law but a series of Supreme Court judgements had limited the scope of the power regulator to follow the government objectives of keeping the tariff on the higher side. In the famous case of Rental Power Plants, the apex court had ordered that the regulator was not bound to follow government instructions against the law and it should pass on only fair and prudent costs of electricity to the consumers.

The crux of the judgement was that consumers paying their bills should not be made to bear the burden of those who do not pay, theft, or inefficiencies, because it was the responsibility of the power companies to ensure full recoveries and control theft and losses.

The government prepared a template case for all the distribution companies and has contended, before the high court, that it was following a uniform tariff regime across the country despite ten different tariffs being determined by Nepra for ten different Discos, in order to cater to the socio-economic necessities of the country and to have access to affordable energy for the purposes of economic growth and development.

The government also contended that Nepra’s tariff determinations were a mere recommendation because it was the government that had to notify the tariff of the most efficient power company for all consumers, and on the basis of that provide subsidy to other inefficient companies to keep the tariff uniform.

“If the revenue stream of the Discos is not so supplemented by subsidy, it will adversely impact the ability of the Discos to fulfil their liabilities towards power sector entities and power generation companies — which in turn will lead to increased power outages and load-shedding — since a financial shortfall in the sector will impact the entire power sector’s physical infrastructure, from generation to transmission to distribution”, the government maintains.

The Nepra held that the burden of non-paying consumers, beyond a certain level, could not be passed on to the paying consumers, therefore, the margin for non-recoveries in the tariff could not be allowed or else it would be in violation of the Supreme Court orders.

In yet another case, the government is in the process of challenging, in the court, the Nepra’s determination of tariff for the controversial Nandipur power project after the regulator repeatedly rejected requests by the ministry of water and power, and the generation company concerned, to increase its tariff by 34pc.

Here too, the ministry had exhausted all institutional and regulatory instruments to secure Nandipur’s tariff on ‘actual cost’ after the regulator turned down review and reconsideration requests.

Nepra did not accede to the government request to approve the ‘total actual cost’ of the 425-525MW Nandipur project at Rs65bn, that would have increased Nandipur’s average 30-year tariff at Rs15.63 per unit against Rs11.64 per unit determined by Nepra, on the basis of Rs42bn as ‘prudent cost’.

The cost increase was sought on account of project delays, resultant cost overruns, penalties paid to contractors and the cost of laying a gas pipeline to carry imported re-gasified liquefied natural gas (RLNG) to the project site to run the plant at its full 525MW capacity.

The power regulator has written, time and again, that it had allowed all prudent costs in the tariff, and that consumers could not be punished for the omissions or commissions of the project authorities.

Similarly, there was no precedent to allow for the cost of a gas pipeline in the power tariff because the pipeline should be constructed by the gas company, treated as the gas company’s asset and made part of the gas company’s revenue requirement.

Published in Dawn, Business & Finance weekly, October 10th, 2016