The power sector regulator — National Electric Power Regulatory Authority (Nepra) — appeared to be making a strategic surrender to government pressure by building additional, unreasonable, costs in consumer tariff after its expectations for support from key stakeholders failed.

While the government focused more on issuing directives to the regulator to shore up revenues than improving the power companies, the regulator struggled to convince opposition parties, parliamentary bodies and even the legal system to stand by it.

It gave briefings to the parliamentary committees comprising majority members from the treasury that change in criteria for inducting members for the regulator would weaken the quasi-judicial institution and the uniform tariff would discourage companies to improve efficiency and go against the objective of privatisation, in vain. To its embarrassment, a parliamentarian from the opposition Pakistan Tehrik-e-Insaf alleged the regulator was threatening for support.

As if that was not enough, the regulator had to withdraw a petition from the apex court after sensing that it may even lose gains secured under the judicial activism of former Chief Justice of Pakistan Iftikhar Muhammad Chaudhry. The Nepra also faced setback from the Islamabad High Court where the government and its distribution companies had challenged its determinations.

As a consequence, it had to change fundamental positions — allowing the cost of higher system losses, lower efficiency standards and fewer recoveries to add up to the tariff. The loser in the entire process has been the well-meaning consumer, paying not only for his consumption but also the inefficiencies of the power companies and dishonesty and non-payment of others.

After the regulator struggled to convince opposition parties, parliamentary bodies and even the legal system to stand by it, it had to change fundamental positions — allowing additional costs to add up to the consumer tariff

As such, the latest average tariff for Discos has been set at Rs12.90 per unit. Originally, the Nepra had determined the average tariff at Rs10.90 per unit for 2015-16 which it allowed to be jacked up to Rs11.38 per unit recently and further enhanced to Rs12.90 per unit, with a cumulative impact of about 18.5 per cent.

Already, the regulator had been allowing significantly higher presumptive fuel cost recoveries from consumers to facilitate better cash flows to power companies and then failing to ensure full refunds based on actual fuel costs.

Former member Energy Planning Commission Shahid Sattar said the regulator has been constantly increasing tariff. For example, the Nepra originally determined the following variable charges per unit in consumer end tariff for fiscal year 2015-16 to 2019-20, for B-3 consumers of Discos, and sent it to GoP for notification in March 2016. (Table 01)

The government did not notify this tariff and instead asked the Discos to contest it in the Islamabad High Court. The court disposed off the petitions and directed Nepra for a rehearing. The regulator conducted the rehearing on July 24, and issued re-determination of tariff on September 18, asking the government for notification within 15 days.

The government did not notify this re-determination. Variable charges per unit have been increased and rates for B-3 consumers in re-determined tariff are as under: (Table 02)

In addition, to this the Nepra started suo moto proceedings regarding Periodical Adjustments on account of the Power Purchase Price (PPP) and Prior Year Adjustment (PYA) in the consumer end tariff of Discos pertaining to FY2016-17. A public hearing was conducted by Nepra on October 10.

It was expected that the regulator will increase the tariff again and it did. It announced the decision on October 23, in the matter of suo moto proceedings and sent the determination to GoP for notification within 15 days. The variable charges per unit have been increased further and rates for B-3 consumers in determined tariff for Discos are as under. (Table 03)

The government is expected to increase the tariff by more than Rs2 per unit with the addition of surcharges to make the tariff uniform for all Discos because tariffs for SEPCO, HESCO and PESCO are very high. The cumulative impact of this increase for a year has been estimated close to Rs150 billion.

The regulator said it was revising its determinations on the directions of the Islamabad High Court “to ensure financial viability of the power sector which otherwise would result in huge prior year adjustments and would not be in the interest of the consumers”.

It said the period for FY2015-16 for which the tariff was being re-determined had already lapsed; hence it decided to include the impact of over/under recovery on account of power purchase price, distribution margins and prior year adjustments in the consumer tariff.

Moreover, it also put on record that FY2016-17 had already lapsed and variations on account of power purchase price, including losses, had not been recovered or passed on to the consumers because the government did not notify the tariffs for two years as determined by the regulator.

A major additional impact had become due because of payables to the Khyber Pakhtunkhwa government on account of net hydel profit and its arrears under an agreement between the federal and provincial governments.

Regarding objections that higher system losses were being made part of the new tariff, the regulator said that since its determinations were not implemented by the government for two years, the instant adjustments were based on the existing notified tariff.

Also, since the tariffs were not notified by the government, the regulator’s assessed targets had not become binding on the power companies.

Published in Dawn, The Business and Finance Weekly, October 30th, 2017