ISLAMABAD: The government and the National Electric Power Regulatory Authority (Nepra) are at loggerheads over a proposal to increase power tariff by an average Rs4 per unit (51 per cent).
Nepra made public a tariff determination on Tuesday in which it rejected a confidential policy note from the ministry of water and power seeking the increase through monthly fuel adjustment to absolve the government of a political backlash in what may be an election year.
The crux of the dispute -- government’s business plan and Nepra’s determination -- is that power tariff for distribution companies of Wapda has to be increased by about Rs7 per unit.
If the government accepts the Nepra judgement it will have to notify an average increase of Rs4 per unit in base tariff or provide Rs350 billion in subsidy, while Nepra will have to separately increase tariff by about Rs3 per unit in the shape of automatic fuel adjustment. If Nepra yields to the government pressure, it will have to increase tariff by Rs7 per unit through the monthly fuel adjustment formula.
Nepra said the ministry’s policy note was ‘inconsistent’ with four major provisions of the Nepra act, which could not be accepted unless the act was amended by parliament. Under the Nepra ruling, the government is required to notify a fresh consumer tariff of Rs11.709 per unit in place of the existing Rs7.78 per unit or provide Rs350 billion subsidy.
The government on the other hand believes that this will not only cause political unrest but also “require and oblige to cater to additional subsidy (in excess of budgeted Rs50 billion for the current year), thereby jeopardising financial sustainability of the entire sector keeping in view financial constraints and limitations and restrictions imposed under the Fiscal Responsibility and Debt Limitation Act 2005”.
Under the law, the government is required to notify Nepra-determined tariff within 15 days because it has already exercised its right to seek review which has been rejected by Nepra.
Since Nepra has already sent its tariff determination on four distribution companies, including the Islamabad Electric Supply Company whose tariff applies to all other companies for uniformity across the country, the notification for tariff increase has become binding on the government for which it will require to provide additional subsidy.
But legal minds in the government are of the opinion that this can be sidestepped until Nepra issues its determinations for all distribution companies of Wapda.
Nepra has so far issued determinations for four companies; two more have been finalised and two are being worked upon.
Informed sources said that after having exhausted all legal remedies, the government had asked Nepra chairman Khalid Saeed to delay determination of tariff for the remaining three companies of Wapda and pass on to consumers the cost of fuel impact through the monthly automatic tariff regime to relieve the government of political pressure. In that case, Nepra would have to increase the fuel-based tariff for October, November and December by about Rs7 per unit, the sources said.
Inside sources said that because of the government pressure, Nepra chairman had put on hold release of its determinations for Faisalabad and Hyderabad electric supply companies despite the fact that these are ready for over a month now.
The power ministry asked Nepra to take into account the government’s business plan which envisaged furnace oil price at Rs46,000 per ton for the financial year 2011-12.
Nepra argued that the demand was “not realistic” because fuel price had gone beyond Rs66,723 per ton, excluding general sales tax. It said the business plan did not take into account the use of high speed diesel which was expensive but consumed for power generation because of gas shortage under a decision by the Economic Coordination Committee of the cabinet and currency devaluation.
“In view thereof, accepting the water and power ministry’s business plan being based on unrealistic assumptions will not only be misleading but will also be inconsistent with five different provisions of Rule 17 (3) of Nepra Standards and Procedure Rules 1998”, it added.
Nepra has turned down the power ministry’s request to review its decision.
The ministry said Nepra’s refusal to accept reference fuel price at Rs46,000 per ton had increased subsidy “beyond affordable limit” and asked it to consider the government’s economic and social policy objectives and allow adequate transition time for minimising subsidies and financial sustainability of the sector and giving the all-slab benefit to consumers instead of one-slab benefit.
Following a twice-postponed hearing on the power ministry’s request, Nepra finally heard its arguments on Feb 9 and reached the conclusion that the ministry could not provide any cogent reason to incorporate its business plan in the tariff determination. “The ministry also could not satisfy the authority with regard to its observation that the policy decision is not consistent with the provision of Nepra Act.”
In view of these facts, Nepra has again intimated to the government to notify the revised tariff in the official gazette.