THE 5-member Tribunal led by former Chief Justice of Pakistan Ajmal Mian announced last month a landmark award that provides a net additional payment of Rs110.4 billion within five years by Wapda to the NWFP on account of net hydro profit (NHP) of Tarbela dam and other hydro resources.

Obviously, the award would improve finances of the NWFP government that has been funding its development programme for years through federal subventions, grants and loans. It would also help consolidate political position of the Muttahida Majlis-e-Amal ahead of general elections.

But Wapda has its own views on the Award. The authority informed the federal government that a case should be submitted to the Council of Common Interest (CCI) – that is incidentally in place at present – to scrap the AGN Kazi formula. Going forward, the formula would no more be workable.

The ministry of water and power has responded by asking the power utility to prepare para-wise comments on the award. A month down the road, the power utility is yet to form its considered opinion on legal grounds, although, it is stated that a reasonable basis have been provided by three members of the tribunal, including Senator Khursheed Ahmad in their separate notes.

The dispute between Wapda and the NWFP government is an example of bad governance, mismanagement of institutions and ad hocism in inter-provincial affairs; policy decisions that has led to the award, apparently beyond the financial competence of Wapda to fulfil.

The prolonged delay in implementation of the CCI decisions and non-fulfilment of a constitutional obligation for more than 15 years, has deprived the poor province of its rights. It has resulted in borrowings by NWFP at a high mark up from the federal government for day-to-day needs.

At the same time, it raises question as to how Wapda would pay Rs110 billion as arrears, in addition to Rs28 billion worked out for the current year and that would keep on escalating at the rate of 10 per cent per annum.

In the words of Senator Khurshid Ahmad, the NWFP member on the tribunal, “protection of the hen that lays golden eggs is a common concern of all the parties”.

In 1991, the then Wapda chairman had informed the centre that, “the mode of calculation adopted by the Kazi Committee was not valid if payment had to be made by Wapda”. With the application of Kazi formula, he has then said the consumer tariff would double in three years. On this warning, the government constituted a committee to examine the full implications of the formula.

According to the findings of the Award, “the committee did not hold any meeting and submit any report” and the Wapda was directed under an executive order to start making payments to the NWFP.

One way to raise money for these additional payments as determined by the tribunal would be an increase in consumer tariff on annual basis.

Critics ask: is the (AGN) Kazi Committee formula valid forever, notwithstanding new developments since then. Is mismanaged Wapda in a position to meet similar demands from other provinces, AJK and Northern Areas if the same formula is applied?

And more importantly, who would ensure payments to the NWFP when Wapda stands privatised in a matter of few years from now, notwithstanding federal government’s guarantees to the provinces that its share would not come down.

Punjab has sought net hydro profit from Ghazi Barotha Hydropower Project, and similar projects like Chashma, Rasool, Shadiwal, Chechoki, Renala and Jinnah Hydropower. On the same lines, the people of Fata and Northern Areas have started to demand royalty and profits on Warsak dam and proposed Bhasha dam respectively.

NWFP’s total claim against the Wapda amounted to Rs595.6 billion, including a principal amount of Rs293 billion and mark-up of Rs302.7 billion calculated since 1991. Notwithstanding the fact that the chairman of the tribunal did not accept the claim for mark up on legal grounds.

The arbitrators are stated to have provided enough ground to do away with the AGN Kazi Formula. To quote Senator Professor Khurshid Ahmad “I have no reservation in sharing my concern that in the interests of justice as much as catering for the demands of economic rationality, the genuine difficulties and challenges faced by Wapda, not visualised in the Kazi Committee Report, too cannot be ignored... It is only the CCI or the Parliament that can revisit it... There are new and complex developments which cannot be ignored in the best interest of justice, economic rationality and socio-economic realities and demands”.

The chairman of the tribunal Justice Ajmal Mian also seemed to share these views when he said that so many new factors have been introduced during the post 1990-91 period that strict extension of the application of the formula was fraught with complexities and insurmountable difficulties.

Mr Manzoor A. Sheikh, Wapda’s member to the tribunal argued that the tribunal had gone outside its TORs (terms of reference) to give award in favour of the NWFP. He said, “the Kazi Committee Mechanism (KCM) has the effect of discouraging construction of new dams. The NHP are based on average sale rate of electricity, but it does not take into account all the costs incurred to generate that revenue. An increase in the tariff because of increase in the cost of production of thermal electricity would automatically increase NHP, with the snowballing effect. This makes the electricity very expensive”.

In his remarks, Manzoor Sheikh said, Ghazi Barotha has come into operation. Construction of Bhasha dam has started. Construction of four new hydro dams is planned. If the KCM is applied to these dams, it will make hydropower generation expensive and Wapda will be simply unable to meet these enormous obligations from its cash flows.

“There is an immediate need to scrap the KCM, and come up with a more realistic methodology. The methodology should ensure that the amount paid to the provinces is reasonable and fair, is actually paid to the provinces regularly, and development activities of Wapda did not suffer”.

Wapda’s member to the tribunal Javed Akhtar strongly criticised the Kazi formula and demanded its annulment without further delay. Since the profit did not exist in reality with Wapda and net hydro profit is to be calculated on the basis of overall assets and revenue of the utility, he said “therefore the only way in which Wapda would pay for it was by raising its existing tariff. However, as soon as the tariff was raised, the Kazi committee formula would automatically result in an immediate increase in the NHP.

In order to pay for this additional increase, the tariff would have to be raised once again. Since this would result in yet another increase in the NHP, this cycle would have to be repeated.

Needless to say such a process cannot be sustained in even the short-run let alone the long-run. Thus the original problem (i.e. the flawed methodology of the Kazi Committee) got worsened because the federal government decided that the NHP would be paid by Wapda. This problem would obviously not have arisen if the federal government had paid the NHP out of its own resources”.

Javed Akhtar also criticised the formula on the ground that it did not take into account the transmission and distribution costs of electricity and calculated the profit on overall power generation and Wapda assets including high cost thermal power.

The tribunal reached the conclusion that the formula was not workable but envisaged Rs10 billion additional amount to NWFP as a reasonable and fair compensation to the NWFP for the harm it may have suffered on account of this dispute which has lasted for so long.

“It should in no way be seen to be an exact calculation but merely an approximate estimate of the profit and hence cannot be made a precedent for the future. I feel very strongly that it is vital for the well being of the federation that the overall system must be reformed immediately”.

From the legal point of view, the award that apparently ends a 14-year old dispute is binding, comes into force at once and cannot be challenged in any court of law. The award provides for payment of the first instalment in three months. The remaining instalments are payable before the end of every year, which means the second tranche would be due on Dec 31, 2007.

In his 87-page award, Justice Ajmal Mian adopted the base amount of net hydro profit at Rs6.088 billion for the year 1989-90 as reported by a committee of the National Finance Commission on the instructions of the Council of Common Interests (CCI) on Jan 12, 1991.

The committee had also agreed to a 10 per cent increase in hydro profit for future computation of the A.G.N. Kazi formula. Justice Ajmal Mian computed the total amount of NWFP’s net hydro profit since 1991 at Rs193.763 billion. Of this, Wapda had over the years, paid Rs83 billion.