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  • Jul 20th, 2018
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The Central Power Purchasing Agency-Guaranteed (CPPA-G) has sought a 71-paisa per unit increase in tariffs of distribution companies (Discos) effective June 2018 to cover the cost of security under China Pakistan Economic Corridor power projects. This decision must be looked at within its historical context.

Prior to PML-N administration's decision to bring regulatory authorities, including National Power Regulatory Authority (Nepra), under the administrative control of the line ministry namely the Water and Power Ministry later merged with the Ministry of Petroleum and Natural Resources to form the Ministry of Energy, Nepra had rejected the government proposal to allow one percent additional tariff as security cost for CPEC projects. The rationale for the rejection was quite cogent.

Subsequent to the Quetta terror attack dated 8 August 2016 with more than 70 fatalities, the federal Cabinet led by Nawaz Sharif decided to impose one percent of the total capital cost of CPEC projects to cover the cost of security. Nepra was asked to comment on the summary and it opposed it on the following legitimate grounds: (i) Nepra had announced different upfront tariffs for wind, solar, bagasse and small hydel projects as well as large hydel and LNG projects after a due and consultative process as well as public hearings provided for under the Nepra Act that had assumed finality therefore to include an additional security cost would generate legal complications; (ii) while determining the upfront tariff of these projects a reasonable security cost had already been permitted to cover the cost of sabotage and an insurance cost provided for separately; (iii) extra security was required for expatriate workers, however an extension of this cost for 30 years of the project's life was declared to be burdensome for the end consumers; and (iv) all independent power producers (IPPs) have security risks similar to CPEC projects and an extension of these costs to CPEC projects alone would be discriminatory with the likelihood of other IPPs demanding this cost as well.

By December of 2016, five regulatory bodies, including Nepra, were brought under the control of their line ministries. This order was suspended by the Lahore High Court and later by the Islamabad High Court on the grounds that the Council of Common Interest needs to approve the measure. By the first week of June 2017, reports indicated that the five regulators were placed under their line ministries ostensibly in defiance of the courts' orders as Sindh and KPK governments claimed that they had opposed the move and the KPK government added that it had opposed the move in writing.

Not surprisingly, once Nepra was brought under the control of the line ministry - a decision opposed by international donor agencies including the International Monetary Fund - it withdrew its earlier legitimate concerns about imposing an additional one percent of IPPs capital cost as security cost to pass on to the end consumers. This decision would no doubt further widen the difference in the cost of electricity between our end consumers and those of neighbouring countries including, India and Bangladesh, with a consequent negative impact on our input costs and thereby further compromise the capacity of Pakistan's manufacturing sector to compete internationally as well as domestically given the ongoing lucrative smuggling activity across thousands of miles of our porous border.

The PML-N government brought the regulators under the line ministries, compromising their primary responsibility to protect and promote public interest. It is therefore extremely unfortunate that a flawed decision by that government that violated the courts' orders remains in force today. One would have hoped that the caretaker government had taken appropriate measures and comply with the courts' orders.

Copyright Business Recorder, 2018


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