Nepra loses legal authority in two members’ absence

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ISLAMABAD: Amid question marks over countrywide uniform electricity tariff and more than Rs65 billion annual extra payments to independent power producers (IPPs), the National Electric Power Regulatory Authority (Nepra) has become legally dysfunctional in the absence of majority of its members.

On Friday (Nov 23), the term-in-office of Nepra Chairman Tariq Saddozai expired when the regulator was already short of two members from Sindh and Khyber Pakhtunkhwa. Thus, Nepra lost its mandatory three-member quorum required to take decisions. Currently, it has only two members — from Punjab and Balochistan — in the five-member authority.

This comes on the heels of a public hearing scheduled for Monday (today) at the request of the power division seeking uniform application of consumer tariff approved by the government last month, with Rs1.27 per unit average increase. The tariff hike approved by the Economic Coordination Committee of the federal cabinet could not have been notified so far due to legal complications, creating around Rs1bn financial gap for power distribution companies (Discos).

Public hearing scheduled for today on uniform application of consumer tariff approved by government last month

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Secondly, Nepra was in the process of lowering returns on investment and return to the IPPs of all fuels when it was told last week that the successive governments since 2005 had been paying $485 million undue returns to the power producers on account of double accounting of exchange risk cover. The regulator could not reach a conclusion after it lost the quorum.

Also Read: Govt to face Rs1 bn daily loss as Nepra becomes dysfunctional

Sindh and KP have nominated their members to Nepra about three weeks ago, but senior officials of the power and cabinet divisions have failed to seek their approval from the cabinet that has met four times since then, according to informed sources.

They said Nepra had also twice reminded the cabinet and power divisions about the looming vacancy of the post of the chairman and the resultant quorum issue, with the request to initiate the process for appointment of a new chairman or extend the tenure of Mr Saddozai to address legal lacunae, but in vain.

Interestingly, the Sindh government has nominated Rafique Shaikh, a general manager of K-Electric, as its member to the regulator without declaring his conflict of interest. The KP has nominated Arbab Mohammad Arif, currently posted as registrar Supreme Court of Pakistan. Both, the nominations are pending approval.

The sources said the government might give a few additional days to Mr Saddozai on Monday to secure quorum, but this move would be questionable.

They said two senior officials of the power division had convinced outgoing chairman Saddozai to admit the request for uniform tariff even though there was conflict of opinion whether or not such a request was permissible under the amended Nepra act. However, no presiding officer was nominated by the former chairman to preside over the public hearing, creating a legal gap.

It was, however, opined that even if one of the two remaining members could preside over the hearing, the legal authority to reach any conclusion on the subject could only be made by a minimum of three members or two members and a chairman, and no less.

Four other shortcomings have also been highlighted by the regulator. All 10 Discos have different shareholding patterns, varying from federal government to employees of Discos. Therefore, a uniform request by the power division does not merit for a uniform tariff decision under the amended act.

Also, the government has filed the request claiming public interest, but it has also been underscored that all companies have individual tariffs, including an average Rs9per unit for Islamabad and Rs22 per unit for the Hyderabad Electric Supply Company. In this case, a uniform rate may be considered in public interest of Hesco consumers, but against the interests of Islamabad-based consumers.

Since all distribution companies are not separate licence-holders, the federal government cannot seek a review for uniform rates when the regulator has already determined consumer tariff for all Discos separately.

At a consultative session on reduction of returns to power sector investors, KRAFRAC Consulting reported that returns allowed to power sector companies in Pakistan were “indeed high” and several incentives (offered there) are not available in other countries. “The most important reason (for high returns) is the double counting of compensation for expected exchange rate movement,” says a position paper released by the regulator.

It was reported that Nepra allowed rates of return with implied compensation for any adverse currency exchange rate movement, but the then government in 2004-05 issued instructions to “allow all investors a separate coverage” for the exchange rate losses, causing a “windfall return” at an additional average of 4.85pc per year without any additional risk to investors.

Published in Dawn, November 26th, 2018

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