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Regulatory reforms

Updated December 19, 2016


Due to a last-minute objection by Khyber Pakhtunkhwa Chief Minister Pervez Khattak, the Centre decided not to go through the amendments to the National Electric Power Regulatory Authority law at a meeting of the Council of Common Interests held last week.

Instead, the Council would now constitute a team of legal experts to critically examine changes proposed by the Ministry of Water And Power in the National Electric Power Regulatory Authority (Nepra) law which, in their present form, would drastically compromise the regulator’s independence, change its composition and legally empower the government to impose surcharges now facing judicial scrutiny.

Although, the amendment law seeks to move towards a competitive electricity trading market — an aim also covered in the existing law — the underlying theme of the proposed law is to ‘regulate the regulator’ to follow government instructions and provide amnesty when following government directives ‘in good faith’.

More importantly, the new law has proposed doing away with the current provincial representation in the Nepra and replacing provincial members with professionals of choice to be selected, among other federal ministers, by the minister for water and power.

For example in the name of ‘strengthening the Nepra’, the new law seeks a reconstitution of the authority so that its members can be appointed on the basis of qualification, ability, capability and reputation, and not on the basis of experience or provincial affiliation.

The new law has also proposed de-licensing the electricity generation and freely permitting captive power generation

The power ministry has built the argument that provincial representation in the Nepra should be done away with because constitutionally all decisions relating to electricity and the Nepra were already with the Council of Common Interests (CCI) which has provincial representation.

It has also proposed the establishment of an appellate tribunal to hear decisions against the authority. This stems from the recent experience of the power ministry whose requests for review of the Nepra’s decisions were sometimes rejected.

The Nepra law only provides a tribunal comprising of officers of the authority to resolve disputes between regulated entities. The government now wants a tribunal comprising of both technical and legal members independently of the Nepra to mediate appeals against the authority’s orders.

Currently this jurisdiction is with the high courts’ and the Supreme Court of Pakistan. The power ministry has argued that this amendment would ‘reduce the burden of litigation in the power sector and speed up dispute resolution’.

In view of recent challenges in courts to a series of surcharges — tariff rationalisation surcharge, tariff equalisation surcharge, debt servicing surcharge, financing cost surcharge etc — imposed by the government to forestall tariff reductions worth around Rs320bn determined by the Nepra over the last two years, the government wants fresh powers under the act of parliament to impose surcharges.

Under the existing legal regime, surcharges were deemed to be a part of the cost of the company. The power ministry has argued that this created confusion regarding the status of surcharges in the scheme of the tariff setting regime. Therefore, ‘power to impose surcharges’ and ‘parameters for imposing a surcharge are also being introduced to ensure a judicious imposition of such surcharges’.

Also, the proposed amendments seek to validate the existing surcharges which are presently under litigation.

In view of past experience where the Supreme Court questioned the Nepra members on following government instructions in the famous Rental Power Plants case, the power ministry wants to give indemnity to the Nepra employees for ‘acts done in good faith to strengthen decision making ability’ instead of allowing accountability for poor decision making.

The new law also promises strengthened powers of investigation and inspection which the government feels were not exercised by the Nepra during last year’s power failure in Karachi which resulted in a loss of many lives.

The proposed law also seeks specific powers for the Nepra to issue legislatively-backed directives, guidelines, codes etc to give additional tools to the regulator to execute its functions more effectively.

It further seeks to clarify policy and regulation functions and the alignment of the authority’s regulatory objectives with the government’s socio-economic objectives.

In doing so, it incorporates in law the government’s need to issue binding directives to the regulator in matters of public interest in emergency situations pertaining to sustainability and the stability of power sector companies.

This would mean the government will be able to set losses and inefficiencies to be built into the power tariff while ‘maintaining the right of the consumers to quality service at a reasonable cost’.

The power ministry believes such statutory directives are imperative in light of the governments’ role as the policymaker in utility regulation vis-à-vis India and Bangladesh.

The proposed amendments also require the Nepra to determine components of tariff instead of only determining the entire tariff because the power ministry believed the approval of ‘tariff in its entirety’ will make a move towards open market trading impossible. It also wanted tariff determination through a bidding process to be recognised under the primary law.

The new law has also proposed de-licensing the electricity generation section and freely permitting captive generation.

This deregulation, according to the power ministry, was aimed at removing regulatory barriers on the supply side and encouraging investment in the power market. An exemption will be hydropower projects which would need clearance from the Nepra.

The KP chief minister demanded the withdrawal of the relevant summary from the CCI agenda that was not circulated to the provinces.

Hopefully, the in-depth consultations would lead to fair decision making for all stakeholders — consumers, investors and the government.

Published in Dawn, Business & Finance weekly, December 19th, 2016