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HERE comes the moment we were warned of in December. The move to ‘capture’ the regulators, particularly the power-sector regulator Nepra, has now been launched with reports that a meeting of the Council of Common Interests (CCI) has approved amendments to the Nepra Act that will disempower the regulator from independently setting power tariffs amongst many others.
And this time there is no opposition. The PPP has, reportedly, gone along with the proposal, with its own chief minister of Sindh voicing strong irritation at Nepra regarding objections to the downward revision of the upfront tariff for Thar coal and wind power. Having announced a high tariff for the first project in the Thar desert, Nepra was now interested in reducing it for future projects, arguing that the first tariff was an introductory offer of sorts, for first movers, and subsequent investors would be on a declining glide path where the tariff was concerned.
Towards the end of March, Nepra held an open hearing on its decision to review the Thar coal tariff, and was surprised to see a large number of people in attendance. The Sindh government, which largely slept through the earlier tariff hearings on solar and wind power, showed up in strength along with a bevy of investors. They rejected objections from the ministry that water costs in Thar are too high to support too many power projects (water supply is, in fact, a huge issue for this project); they pointed to the high cost of debt (at a time of record low interest rates) and much more. Revising the tariffs downward, they argued, would slow down investment.
If Nepra couldn’t keep pace with the tariff petitions, it had more to do with our outmoded power-pricing regime than the regulator.
Then there was the matter of wind power tariffs. Investors were again upset that the tariffs being offered were not attractive enough for them. Nepra issued an upfront tariff for wind power in April 2015, and almost immediately 16 different review petitions were filed by various investors, arguing that the determination was insufficient to mobilise private capital for wind power. In response, Nepra asked the energy department of the Sindh government for comments on the possibility of using competitive tariffs for wind power (most wind potential in the country is in Sindh), where various parties can submit bids for what tariff they will agree on to set up a wind power plant, and the lowest tariff wins.
Once again the Sindh government objected, saying upfront tariffs should be used for unsolicited projects, and competitive bidding should only be applied to those projects where the government was actively seeking investor interest. That matter is still to be laid to rest.
On top of that, many members of the Sindh government were upset at the fact that the upfront solar tariff of Rs16, at which the Punjab government built the Quaid-i-Azam solar park, was no longer being offered to investors, shutting out those in Sindh. They referred to this as a ‘ban’ on further solar projects in the province.
The federal government had its share of issues with Nepra. The regulator was not being pliant enough in granting the tariffs being demanded by Chinese investors, and in more than one case the investor chose to leave rather than continue negotiating.
Is this reason enough to shut down the regulator altogether? Absolutely not. This is the job of the regulator, and if Nepra was unable to keep pace with the flood of tariff petitions that has come its way in the past three years due to CPEC and other interest in Pakistan’s power sector, then it has less to do with the regulator itself and more to do with our outmoded power-pricing regime.
A long time ago, we were supposed to have outgrown the present pricing regime and moved towards competitive pricing, or market-based pricing. But that key reform never happened, much like many other reforms in the power sector — stuck in an outmoded system, where the price of power for each project is individually and manually added up by first determining what their costs are going to be. In today’s world, it is better for the state to stay out of the business of evaluating project costs.
Back in December, when administrative control of Nepra was being passed from one ministry to another, a lot of noise was being made around the impact this might have on the regulator’s independence. Eventually, the government was forced to reverse the notification by a court order, and it was never implemented.
I had argued back then that the notification and the transfer of administrative control was in fact irrelevant to the regulators’ independence. What mattered was the Nepra Act, and this noise ought to be directed in that direction instead. We had heard about amendments to the act that had already been circulated in the CCI, before being withdrawn.
Now those amendments are back, and independence faces the chopping block in earnest, though they still have to be passed by parliament. The fact that the administrative control was irrelevant is clearly demonstrated by the fact that they are preparing to amend the Nepra Act, while the regulator remains under the administrative control of the Cabinet Division.
What is different this time, though, is the absence of political noise. Where are all those who were raising a hue and cry back in December? This was my fear back then, that the noise was little more than showmanship and obstructionism, and that none of the objections were in earnest.
With a disempowered tariff-setting body, we should prepare for a whole cascade of costs to be passed to the tariff. From the cost of maintaining a CPEC security force, to transmission and distribution losses, we are now moving towards what the water and power ministry euphemistically calls “full-cost recovery”. The government will now be empowered to pass any cost they please to the consumer tariff, and the transformation of our power system into a surrogate revenue-gathering system will be complete.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, May 4th, 2017
