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Punjab, KP seek transfer of power sector to provinces

February 04, 2011

Sources told Dawn on Friday that Punjab and Khyber Pakhtunkhwa had sought a constitutional amendment to transfer the subject of electricity from the centre to the provinces. -File Photo

ISLAMABAD: As the government struggles to restructure the power sector, the National Electric Power Regulatory Authority (Nepra) has expressed its inability to directly notify consumer-end tariffs unless the government takes a broader constitutional-cum-policy decision to have different electricity rates in the provinces and regions. Sources told Dawn on Friday that Punjab and Khyber Pakhtunkhwa had sought a constitutional amendment to transfer the subject of electricity from the centre to the provinces.

According to the sources, Nepra’s hesitation to exercise powers to notify electricity tariff without the government’s intervention stems from a wide gap in electricity generation costs and system losses of nine distribution companies of Wapda.

The sources said the direct Nepra notifications would result in an average electricity tariff of about Rs8 for five distribution companies operating in Punjab and about Rs12 and 13 in Sindh and Balochistan.

At present, the federal government picks up this tariff differential through about Rs125 billion of annual cross-subsidy to maintain a uniform tariff across the country.

Nepra believes that it cannot have access to such a big amount of funds to equalise tariff.

As a result, a move triggered on the advice of international lending agencies to amend the Nepra Act envisaging automatic notification of tariffs for different distribution companies on the basis of ‘prudent energy cost’ determined by the power regulator has run into snags.

As a consequence, the sources said, the funding from the World Bank for power sector improvement programme had been delayed.

A proposal to impose a special surcharge on electricity consumers for creation of a common-use fund to equalise tariffs across the country also runs the risk of being declared void by a court when consumers of efficient distribution companies challenge the prudence of the surcharge.

The World Bank and the Asian Development Bank, the sources said, had already expressed their concern over the federal government’s inability to empower Nepra to pass on the impact of fuel cost adjustment to consumers.

The government had originally issued a presidential ordinance under which Nepra notified the fuel adjustment on a monthly basis. After three extensions, the ordinance lost its legal validity on June 2010.

Since then, Nepra determines the impact of fuel cost and forwards it to the water and power ministry for notification.

But this fuel adjustment remains unimplemented in the case of Karachi Electric Supply Corporation because of a court stay order.

Nepra has determined about 96 paisa per unit reduction in KESC tariff on account of fuel price since August this year and the higher revenue so accrued is being utilised by the privatised power utility for its cash flows.

The government had given a commitment to bilateral and multilateral lenders, including the US, the World Bank and Asian Development Bank to amend the Nepra Act by the end of January 2011 so that its tariff determinations automatically stand notified as applicable tariff, in a larger goal to achieve full cost recovery of power generation for eradicating subsidies.

Background discussions with officials suggest the government and opposition lawmakers have now realised that a fresh lacuna had emerged after the 18th Amendment under which electricity had been included in the federal legislative list and oil and gas transferred to the provinces.

For that reason Punjab and Khyber Pakhtunkhwa have asked the federal government to start working on transferring electricity to the provinces because it works for freight pool deregulation of petroleum products that would result in much lower petroleum prices in Karachi than in Punjab and KP because of higher transportation charges.

The two provinces are now demanding that there should be differential tariffs for all distribution companies.

In their view, if the provincial governments desired to have lower tariff, they should create a fund at the provincial level to subsidise consumers.

The Punjab government argues that most of its companies—Lahore, Islamabad, Multan, Gujranwala and Faisalabad Electricity Supply Companies—have much lower electricity generation and distribution costs and their consumers should not be made to pay higher rates for the line losses of inefficient companies like Hyderabad, Sukkur and Quetta Electricity Supply Companies for ever.

Nepra sources said that differential tariffs for all companies were practically much easier option but it would have major social and political repercussions.

They said that all distribution companies had their well-defined service areas in their provincial boundaries and none of them had consumers in other provinces.