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The reason for the reduction in the tariff increase is attributed to lowering of fuel oil cost estimate to Rs45,000 from Rs65,000, in line with Ministry of Power's recommendation

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) withdrew on Tuesday the Rs3.03 per unit increase allowed last month over the base tariff and notified with a majority vote an increase of Rs1.67 per unit for all distribution companies except KESC.

According to a Nepra notification, there will be a decrease of Rs1.36 per unit in the bill of consumers on account of fuel charges adjustment as compared to Aug 2011.

A senior Nepra official explained that the effective tariff should have come down by about Rs3 per unit if the regulator had stood by its own judgement of last month in which it had rejected a request from the water and power ministry to treat a base fuel tariff of Rs45,000 per ton, instead of Nepra-determined fuel cost of Rs65,000 per ton.

As a result, Nepra member from Khyber Pakhtunkhwa, Shaukat Ali Kundi, wrote a dissenting note saying the regulator had determined the tariff for Wapda companies on the basis of Rs65,000 per ton and sent to the government for notification.

After declining the government’s request for reconsideration, the tariff determination of Nepra has attained finality and will be deemed to have been notified in the official gazette under the Nepra Act.

He said the fuel cost component of Rs65,000 per ton determined by Nepra should be assumed a benchmark for all future references while determining the fuel cost adjustment for Wapda companies for the 2011-12 fiscal year.

He said the reference tariff for fuel adjustment for September should have been assumed at Rs6.55 per unit based on furnace oil price of 65,000 per ton in 2011-12, instead of Rs5.54 per unit that was applicable in 2010-11 when the furnace oil was available at Rs45,000 per ton.

“There seems to be no legal justification for making adjustment to the basis of references determined for 2010-11 which is now non-existent and irrelevant,” he said.

The two members of Nepra who notified the higher tariff did not even mention their earlier unanimous judgement, but said they had disallowed the cost of power purchased from rental power projects following a decision of the Supreme Court that cancelled deals with RPPs.

A Nepra official agreed in principle that since the three-member regulator had unanimously rejected the power ministry’s request, it would have been better if the fresh decision that nullified the earlier determination should have been approved by a larger bench, comprising at least four members.Interestingly, Nepra had rejected last month a request by the ministry of water and power to assume furnace oil price at Rs45,000 per ton for the current year that prevailed in the 2010-11 financial year keeping in view economic and social policy objectives of the federal government.

The ministry had also sought to allow adequate transition time for the minimisation of subsidies, financial sustainability and feasibility of tariffs and financial stability of the sector.

The ministry was of the view that calculating base tariff on the basis of Rs66,723 for 2011-12 would oblige the government to cater for additional subsidy, thereby jeopardising financial sustainability of the sector and financial constraints and limitations of restrictions imposed under the fiscal responsibility and debt limitation act.

Nepra, while rejecting the ministry’s plea, had held that the request was in violation of the Nepra act and tariff standards.

Nepra has now indirectly accepted the power ministry’s stand by recognising energy cost on the basis of Rs45,000 per ton, resulting in higher tariff increases.

The fine line between the two legal positions is that fuel-based tariff increase is directly notified by Nepra soon after its determination under law. On the other hand, the base tariff increase has to be notified by the government after a determination is issued by Nepra.

In that case, the government has to take political blame for tariff increase or has to provide subsidy that for the current year had been estimated to touch Rs350 billion.

Under the Nepra act, if the government fails to notify the base tariff within 15 days of rejection of its reconsideration request, Nepra-determined tariff will be deemed to have been notified.