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Power surcharges run into challenges

Updated March 14, 2018

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ISLAMABAD: With the circular debt stock rising beyond Rs1 trillion, private stakeholders have challenged the government move to impose Rs1.55 surcharges on electricity tariff for covering Rs110 billion losses allegedly caused by inefficiencies of power companies.

At a public hearing that was challenged by two interveners for having been arranged on very short notice, a senior officer representing the Power Division — Zargham Ishaq Khan — pleaded that three surcharges worth an average Rs1.55 per unit be notified as part of the consumer tariff to reduce the burden on federal budget.

The hearing was presided over by National Electric Power Regulatory Authority (Nepra) Chairman Tariq Sadozai soon after an unannounced meeting at the Ministry of Finance.

Shahid Sattar, an intervener on behalf of the All Pakistan Textile Mills Association (Aptma), challenged the financing cost surcharge on the premise that Nepra itself had disallowed putting additional burden of accumulated circular debt on honest and paying consumers for inefficiencies of the government and its companies.

Govt claims these surcharges are meant to reduce the burden on federal budget

He said the government had raised commercial loans to finance the same disallowed amount and started its servicing through the financing cost surcharge which was intrinsically against the basic spirit of the Nepra decision. He said through the latest petition, the government was trying to get out of the court process to impose three surcharges at a time when the subject was pending adjudication before the Supreme Court of Pakistan.

A legal adviser of Nepra has confirmed that the Lahore High Court has declared these surcharges illegal, but they are stayed by the apex court which has so far not issued its final order.

Mr Zargham said the ministry was seeking three surcharges, namely Financing Cost Surcharge, Tariff Rationalisation Surcharge and Neelum-Jhelum Surcharge for different purposes. This included Neelum-Jhelum Surcharge at the rate of 10 paisa per unit for 969mw hydropower project to generate about Rs7.5bn per annum and financing cost surcharge at the rate of 43 paisa per unit to ensure Rs30-32bn for debt servicing of Power Holding Private Limited.

The Tariff Rationalisation Surcharge mandated by the Council of Common Interests to reduce overall power subsidy on the budget and yet maintain that subsidy level for consumers below 300 units and agricultural consumers unchanged and to keep the tariff uniform across the country.

The tariff rational surcharge, he said, varied from one Distribution Company to another but was roughly averaged at Rs1.02 per unit. He said the total subsidy requirement for a year was estimated at Rs238bn, of which Rs95-100bn had been earmarked in the federal budget and the gap had to be filled through this surcharge.

Responding to a question, Mr Zargham said the fresh flow of circular debt currently stood at about Rs541bn apart from Power Holding (Private) Limited (PHPL) debt which stood at Rs434bn before going beyond Rs480bn after recent additional borrowing of Rs80bn approved by the Economic Coordination Committee. He explained that the latest borrowing was not a simple add on to the PHPL loans because of some previous loans had been re-profiled.

Responding to another question, he said he had told the Nepra chairman that continuation of surcharges the “effective tariff remains the same and unchanged.”

An official said the continuation of three surcharges would not increase current tariff but would deprive the consumers a legitimate tariff reduction. The three surcharges were earlier set aside by the Lahore High Court for being illegal but the Supreme Court suspended the high court order on an appeal of the federal government early last year but the matter could not reach finality.

Mr Sattar contended that the government had filed the request for continuation of three surcharges for fiscal year 2015-16 four months after Nepra had determined tariffs for various companies in violation of the Limitation Act.

He said not only the reconsideration request was “hopelessly time barred” but the law also required that every suit instituted, appeal preferred, and application made after the period of limitation shall be dismissed.

Mr Sattar and Anwar Kamal Law Associates contested the hearing, saying the government filed the petition for surcharges after a time bar of four months while the hearing was called effectively on a single day notice. “Asking for meaningful opinions/suggestions/comments from consumers and stakeholder in such a short time shows that it is only an eyewash and for optics,” said Anwar Kamal.

Mr Kamal said that tariff determinations for 2015-16 and 2016-17 had not been notified despite the lapse of two years and nine months of 2017-18, resulting in high tariff to consumers and causing all social, economic and financial problems.

Published in Dawn, March 14th, 2018