ISLAMABAD, Aug 15: The federation is faced with a new dilemma as Khyber Pakhtunkhwa seeks full electricity supplies without shortfall sharing at tariffs lower than other provinces, if the federal government goes ahead with elimination of freight pool on petroleum products and seriously considers Punjab’s demand to have control over electricity distribution companies.

A senior government official told Dawn that even through the provincial government has not yet taken up the issue in writing so far, the provincial leadership has verbally raised the issue in more than two meetings, including at the Council of Common Interest (CCI).

A few days ago, the ECC decided in principle to remove IFEM on high octane blending component (HOBC) as a first step towards gradual elimination of the pool on other products but asked the law ministry to examine its legal side before implementation.

He said the provincial government had warned that if the petroleum ministry pressed its recommendation for elimination of Inland Freight Equalization Margin (IFEM) on petroleum products, it would be left with no option to formally demand lower electricity rates because a major chunk of the cheaper hydroelectric power was currently being produced in KP, thanks primarily to Tarbela dam and Ghazi Barotha Hydropower project.

The elimination of IFEM is estimated to put consumers in far-flung areas at a disadvantageous position because of higher transportation cost when compared with their counterparts near major refining units, like Karachi, Multan and to some extent in areas adjoining Islamabad and Rawalpindi because of limited capacity of Morgah refinery.

“If prices of one set of products are fixed on the principle of proximity with the source of supply as being proposed by the ministry of petroleum in the case of oil products, we have genuine ground to have cheaper electricity at cost-plus pricing formula because power produced from Tarbela and Ghazi Barotha was quite cheaper and more than the provincial requirements,” a senior provincial representatives was reported to have told the federal government.

In fact, the provincial government also wanted to claim control over two major hydropower resources and fix a tariff of its own choice for surplus electricity sale to other provinces because it felt the total requirement in KP and tribal region hovered around 1500MW against total production of more than 5000MW from Tarbela and Ghazi Barotha.

This demand is in line with Punjab’s demand to have control over five distribution companies of Wapda, having less than 12 per cent average system losses and more than 97 per cent revenue recovery rate.

“We are not raising very genuine issues in the larger national interest but some people were pursuing petty commercial interests through elimination of freight pool and distribution of electricity shortfalls,” the KP has reportedly told the federal government and threatened that it could walk out of the coalition government.

A federal government official, however, said the KP government was not confronted because it was not the right forum but said the KP’s diatribe was not justified in the eyes of the constitution.

He said the oil and gas were provincial subjects while electricity was a federal issue.

He said perhaps the KP government wanted to stretch the principle of gas distribution to electricity without going through the constitutional provisions.

He said the constitution provided that the people had first right over gas where these were produced but unlike that, electricity was still a federal subject and part of the federal legislative list.

On top of that Tarbela and Ghazi Barotha were developed through federal consolidated funds having been contributed jointed by the federation, all the four provinces, AJK, Fata and Gilgit Baltistan and hence KP or for that matter any other unit could not claim its control or right of ownership.

Moreover, to the extent of benefit of these installations, the constitution already provided for compensation in terms of net hydel profit, royalty and water use charges that were being paid to all, particularly more than Rs24 billion per annum to KP as net hydel profit.

He said in fact the government was now using revenue recovery as the overarching principle for distribution of electricity and shortfall sharing because it was not only fair but prudent on economic grounds.

He said the distribution companies have already been told to supply maximum electricity to those areas and consumers from where it recovers most of its revenues.

As far as IFEM issue is concerned, the official said, it would be substantially resolved when a joint venture between KP government and PSO would materialise in about two years to establish a $700 million mid-size refinery in KP with a refining capacity of about 36,000 barrels per day.

The government of KP, PSO and a private investor would form a joint venture company to share 20 per cent equity while the remaining 80 per cent funds would be arranged through commercial banks, according to PSO’s managing director Naeem Yahya Mir.

He told Dawn recently that the PSO would also operate and manage the new refinery.

The KP has a potential to produce 30,000-40,000 tons of crude very soon and the refinery would take two to three years to come into production to help PSO reinforce its product market and expand its foothold in Afghanistan.

The refinery would remove oil pricing disadvantage to KP, the official explained.