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ISLAMABAD: Karachi Electric (KE) has accused National Electric Power Regulatory Authority (Nepra) of being " unfair" during the public hearing at Karachi held to hear the viewpoints of all concerned stakeholders about distribution exclusivity, well informed sources told Business Recorder.

The regulator's team headed by its Chairman Tauseef.H. Farooqi held a public hearing on September 21, 2020 on the Authority Proposed Modification (APM) to the distribution licence of K Electric Ltd (KEL).

The power utility, in a post public hearing letter, stated that public hearing ended prematurely due to disturbances created by the attendees at the hearing and as such KE deems it fit to make certain submissions.

"Due to such disobedience, KE was only able to present its case for a brief period and not able to state its entire case/stance. Such time was insufficient, especially considering the complexity of issues involved in the proposal of removal of KE's exclusivity and its consequences for public and investors. Thus, no proper opportunity of hearing was provided to KE as it was neither allowed to complete its legal submissions nor allowed to give detailed explanations on the factual issues involved," said, Aamir Ghaziani, KE's CFO in a letter to Registrar Nepra.

The power utility also pointed out that due to the lack of decorum and order at the public hearing, KE was deprived of its right to make complete submissions in an orderly manner which amounted to a violation of Article 10-A of the Constitution, 1973.

Minister for Energy, Omar Ayub Khan during a recent press conference, accused Member Nepra( Sindh) of being partial to KE.

"Sindh government is backing KE and its member in Nepra had played a key role in reducing the fine imposed on KE. Nepra Authority wanted to impose a higher fine but the Member Sindh persuaded the regulator to impose a lower fine," the Minister added.

Insiders in the government claim that the situation in Nepra is not normal as differences within the Authority are now being leaked to the Power Division and its bosses. Other junior officials are also under pressure. Some officials want replacement of incumbent CEO KE due to reasons best known to them.

KE's CFO in his letter said that whenever members of the general public spoke in support of KE, such members of public were heckled and stopped by groups supporting the APM, therefore, the submissions of such persons could not be properly accounted for at the hearing.

The power utility further stated that at least three speakers who spoke in support of the APM were biased parties or had no nexus with KE's supply. In particular the industry representative who spoke initially whilst appreciating the improvement in KE's performance as compared to its earlier days, supported the APM, however, failed to point out that his industrial concern was not even a consumer of KE and solely relied upon captive power generation for his power needs.

Subsequently, representatives of M/s Shams Power and M/s Younis Brothers Group addressed the Authority and both these entities supported the APM for removal of KE's exclusivity, however, their support is not in the "public interest" but rather their own "personal interests" as both these entities have been granted Generation Licenses by NEPRA along with authorization to supply power to specified industrial or commercial consumers (who are low loss consumers). Both these entities, despite having Generation Licenses have not even attempted to cater to the needs of the general public or high loss areas of KE's service territory but have rather only opted to supply power to consumers that are already in low loss areas and are load-shedding exempt by KE. Such entities are therefore not operating in the public interest but rather their own personal interests. KE would also like to bring to Authority's attention that it has impugned the supply authorizations granted to both these entities and such proceedings are currently subjudice before the Sindh High Court (SHC).

Power utility says that it also became clear at the public hearing that certain political parties and groups were active and following their political agendas rather than making submissions on the purported benefit to general public. The subject public hearing was abruptly ended, when such groups conflicted with each other without allowing KE to rebut their contentions. It was also evident at the hearing that certain groups allegedly supported the industrial sector.

KE is aware that certain industries who rely on KE power have objected to the APM without first addressing key issues whereas attendees from low income areas appreciated KE's performance and raised key and important questions.

KE highlighted that the following key and important questions were left unaddressed at the hearing and are germane to the instant proceedings: (i) If KE's exclusivity is removed through the subject proceedings, how will NEPRA ensure alternative improved supply for consumers of high loss areas or areas currently experiencing load shedding in accordance with National Power Policy, 2013; vulnerable consumers would be adversely affected, as any new entity would only select low loss areas for supplying power rather than high loss areas; (ii) Would Nepra allow and oblige new distribution licensees to take responsibility for specified areas (representing a mix of high loss and low loss areas) or would it continue to grant generation licenses to new entities for supplying power to low loss industrial or commercial consumers only?; (iii) How would Nepra ensure that these new entrants make investment in the distribution infrastructure that caters to the general population and not just select/cherry pick consumers?; (iv) How will the overall tariff be impacted due to avoidance of cross subsidy by consumers opting for new suppliers and how Nepra would ensure that regulated consumers and/or GoP are not burdened further when KE is no longer the exclusive provider of electricity?; (v) How will the overall idle capacity at national grid be impacted, as KE intends to procure additional power from national grid, but if consumer base is not there, then how would optimum utilisation be ensured?; (vi) Ending exclusivity will simply add generation capacity in the country when the country already has excess capacity, whereas the new entrants are likely to use existing infrastructure of KE for delivering power to the consumers. If the issues/challenges are in distribution system, then how would the problem be solved?; (vii) How will KE, in the absence of revenue certainty from low loss profitable consumers, able to execute its investment plan, which is very critical to bridging the demand-supply gap as well as for ensuring safety and reliability of the distribution network?; (viii) Since KE's tariffs determination was based on exclusivity will Nepra reset KE's tariff due to the impact of introduction on competition?; (viii) Can KE's license be modified to withdraw its exclusivity without a clear electricity policy on the same, which is required to be issued by the Federal Government under section14A of Nepra Act and; (ix) Pakistan's power sector needs huge investment to address its chronic problems, reduced inefficiencies and provide affordable power to the consumer. What will be the impact on the investor perception of proposed modification in license with retrospective effect?

A major problem of power sector that has resulted in accumulation of huge circular debt of over Rs. 2.2 trillion is unviable operations of public sector distribution companies. What will be the impact of proposed privatisation of such distribution companies and privatization program in general, considering the adverse impact on investment in KE?

KE maintained that all the above questions and several others remained unanswered and KE was not allowed an opportunity to address such issues or rebut any presumptions made by those supporting the APM. At this juncture, KE reiterates that the proposed APM is not in the public interest but rather the interests of select consumers and KE relies upon its detailed submissions already made through its detailed letter/response dated September 19, 2020 and digital presentation made during the hearing on September 21, 2020.

The power utility says that the proposed modification will never benefit the interests of the general public, as currently there is no policy or plan in place to ensure viability of KE if its exclusivity is removed and there are no rules and regulations to ensure that new entrants actually work towards betterment of the service territory.

CFO KE said that at this juncture, it is crucial to draw attention to Section 14A of the NEPRA Amendment Act of 2018, where Section 14A proffers that in the event that a reform is sought to be made to the power sector, then it is mandatory for the Federal Government to develop and prescribe a policy, with the approval of the Council of Common Interests. In this backdrop, it is stated that the removal of KE's exclusivity amounts to a reform and therefore, the Federal Government must formulate a policy, which has to be approved by the Council of Common Interests. Such a policy should clearly and comprehensively map out the transition plan to move towards competitive markets, decisions related to recovery of stranded costs and cross subsidy as well as provide eligibility criteria and terms i.e. what kind of power, the generator companies will be provided i.e. distribution licenses or supply authorizations along with their duties, responsibilities and obligations, and the duties and responsibilities of the existing distribution licensees. It is therefore submitted that, without such a policy in place, Nepra by unilaterally modifying KE's distribution license is violation of Section 14A of the Amendment Act of 2018 and is also acting against the public interest.

Whilst the counsel for KE was not allowed to make submissions on the meaning and import of "public interests", it is humbly submitted here that before considering to allow the modification, the Authority must first deliberate and decide whether such APM will be in the public interests and not just assume that such APM is in the public interest. Moreover, it is important to submit here that the Supreme Court vide its Order dated September 01, 2020 has allowed Nepra to conduct this exercise and independently determine whether it would be in the public interests to modify KE's exclusivity, hence the said Order passed by the Court must not be interpreted to mean that Nepra has been directed to consider the matter of exclusivity and the determination in this regard has to be made independently by Nepra whilst exercising discretion in a structured manner.

KE's CFO also cited different case laws with a view to strengthening the case of power utility.

Copyright Business Recorder, 2020