The QTAs and FPAs of power sector

Each sector has its issues that need interpretations for the people to understand. The power sector has become a riddle to say the least. Every month the regulator, Nepra (National Electric Power Regulatory Authority), notifies public hearings to consider some new charge or the other. The strange part is that none of these hearings has resulted in the cancellation of any request by the CPPA-G (Central Power Purchasing Agency—Guaranteed) or the DISCOs. The little change that is ever evident is more of a joke, as normally it is just a fraction of the original claims.

That none of these deductions are known to be on account of any intervention proves that the hearings are just a ritual, and all claims are accepted as necessary expense. This could be because of the mindset that a public sector entity could not err or pad-up a claim. However, as it is the same for Pakistan’s lone privatised utility KE too, hence it could be a case of hear no evil and see no evil syndrome faced by NEPRA. Because of this way of notifying the various monthly, quarterly and the annual charges, such hearings or simply ignored all together with lesser and lesser public interest or interventions.

What exactly are these adjustments/changes that now haunt the public? Before we delve into the exact details of these QTAs and the FPAs, we need to understand the business model of power utility companies. These are not normal businesses – rather, are completely regulated. The earnings of the Discos, like NTDC (National Transmission and Despatch Company) and the Gencos (IPPs are another genre and are governed by their PPAs) are calculated by Nepra on the basis of their yearly revenue requirements, making up of the PPP – viz. the power purchase price notified by the CPPA-G, the DM (distribution margin containing the O&M charges etc.) as allowed and lastly the effect of depreciation and the ROR on the investments. The consumer-end tariff is then crafted while keeping all of the above in view and especially the calculated sales in that particular FY, its make-up category wise, proposed PPP, inflation figure, the establishment and O&M cost of operations, etc. In other words, in case of any variation (positive and negative) in any of the above costs, the Discos have the right to seek the same from the Regulator under a set-roster. This is so because the DISCOs do not have recourse to reserves accumulated on account of profits in the past which could ever be tapped into.

Moreover, such a situation further merits recoupment of any extra expense on an immediate basis, as continued operations cannot be compromised. Based on this requirement and the volatility in oil/fuel prices, the Monthly Fuel Price Adjustment (MFPA) was introduced in mid-2010. This was necessitated on account of the high price of oil in the market then which thereafter reached its nadir of only US$ 40/per barrel in 2016. Because of the continuous fall in crude oil price, the monthly FPA for much of 2016-20 was in the negative – meaning, that each month 25 paisa to up to Rs 5.00 per KWHr was deducted from the consumer bill. This facility then was considered as a right. Unfortunately, the present extremely low parity of PKR to US$ has led to heavy billing of the monthly FPA each month since the last three years or so. Such billing is further exacerbated by paucity of foreign exchange with the government and the burden of the upset EDO (economic dispatch order) on account of non-availability of comparatively cheaper fuel each month, which forces the sector to utilize expensive fuels if it wishes to mitigate the consumer demand. The judiciousness of this charge is another issue. Besides, it too has to be debated whether the consumer is to be held responsible for this or has the GoP to be burdened with such charges.

Subsequently, it was also felt that besides the fuel cost, other elements too needed to be considered for adjustment on the quarterly basis. The various heads that would make-up the QTA were the burden of the less or the relief on account of more than assumed usage/demand, the consumer-mix change from the fixed proportions, the effect of inflation, change in the variable O&M, UoSC, capacity charges, impact of T&G losses etc. Theoretically, all of these charges have to accrue from causes and reasons not attributable to inefficiency and lack of correct decision making by the management of the whole value chain. In other words, all of these charges have to be considered as necessary and legal claims.

In line with the laid down process, both the FPAs and QTAs sought by the CPPA(G) are put to test and intervention through notified hearings by NEPRA. It is also mandatory that the Regulator too would audit the requests in a very stringent manner. A table listing the monthly FPA figures asked, those allowed by the Regulator and the minuscule difference is reproduced as below. The small deductions, on the face of it, cannot be accepted as it is, as the FPAs – as per reports are based on two variables viz. the increase in the oil prices (with which the RLNG price is pegged etc.) or a deviation from the approved EDO (economic dispatch order). The latter could be because of non-availability of the marked / suggested power plant(s) or paucity of fuel – a common grouse / complaint during the FOREX starved last three years or so. All in all, it has nothing to do with the poor consumers.

The information in the table reveals that either the asked amounts were perfectly in order or the audit by the Regulator was perfunctory at best. In other words, as all cannot be that correct in Pakistan, it seems that costs that were not due were charged to the unsuspecting consumers. As the QTAs and the FPAs are debilitating to say the least – specially, in light with the continuing inflation figures and the low demand, the average addition to the monthly adjustments is around Rs. 4 per unit, which has become a regular feature. Here, burden of the current inflation is beyond the sector, but the huge chunk on account of low demand – mainly, spurned due to the mindless increase in the tariffs and the stoic attitude of all of the players viz. the GENCOs, IPPs, NTDC, CPPA(G), NEPRA and the DISCOs, call for Nuremberg style trials. That the PPIB (plus AEDB) carries on with more induction of generation besides the 26,000 MW of already labeled units likely to come on bar by 2031 (just 6 years away), calls for deep introspection. More so, when PPIB’s feeble attempts to receive competitive bids for some mythical solution to all of our woes viz. the proposed 600 MW solar power plant at Muzaffargarh – termed as a fuel substitution project (and that too without any serious study)—has miserably failed. The sad part is that the same PPIB and the other proponents privately call for doling out more to the interested, as no one is ready to invest in Pakistan unless windfall gains are promised. Everyone is waiting with bated breath on the results of the latest bidding, while the UAE and Saudi Arabia are being asked to invest on the G-to-G basis (a misnomer as none of the states do business at the governmental level and normally would designate their surrogates).

Accepting the low level of audit and possible receptivity of undue charges, Nepra’s Tribunal required the regulator to re-hear and re-appraise the CPPA(G) demands. Probably, the hearing fixed for 14th March, 2024 had to be cancelled on orders of the Islamabad High Court (IHC). But one thing is clear viz. that NEPRA has to be clinical in its appraisals without giving in to whatever is brought before it by the CPPA(G) on behalf of the DISCOs.

It has not to accept even a cent of undue claims and thus not burden the people with any cost of inefficiency, sad or incorrect interpretations of IPP PPAs, burden of bad planning of sectoral operations, poor contracting of fuels, etc. and such unacceptable claims. The Regulator has to remain un-awed by any pressure from the same MOE (ministry of energy) that may be the reason for most of the charges. Experts opine that such charges do reach between 30 and 50% of the asked FPAs and the QTAs.

In other words, most of the QTAs and the FPAs are a result of the serious skew in the assumptions considered for tariff petitions and ensuing determinations by the same entities ( GENCO /IPPs, NTDC and the DISCOs) that each month come up with the request for the regulator to approve such additional charges from the consumers. While some of these adjustments are triggered and then occur on account of events beyond their fray, but most of the offending issues are the ones that should have been known beforehand. And thus, the above entities had the obligation to arrange mitigation of the same beforehand. The first of the categories could be any abrupt rise in international fuel prices, depletion of the PKR – incidentally, remaining in a very small band-with during the last twenty months or so, some acts of nature – like the floods in the past that forced some power generation to shut or the pipelines/railways carrying fuel that had been affected.

Conversely, if none of these reasons is evident and the QTAs get charged on the basis of lower demand or if a category of consumers decides to reduce its off-take, etc., than the same cannot be made the reason for such an adjustment and that too chargeable to the people. As it could be on account of bad projections at the time of the yearly or multiyear tariff petitions, the Disco concerned has to take the burden on itself. The Discos must be cognizant of all this and efforts to mitigate such a burden, should be glaringly evident, otherwise the poor consumer cannot be burdened with any such adjustment.

The FPAs on the other hand, depend basically on the change in fuel cost for that particular month and the change in generation pattern beyond anyone’s sway (like Hydel, Wind and Solar) and the ensuing change in the EDO (Economic Dispatch Order). However, it cannot ever be on the basis of someone’s inability to arrange for fuel at the right time and of the needed volume, non-availability of generation beyond allowed downtimes ,etc., continued constriction to transmission and distribution of power and lastly to the change in the set EDO or account of one of the other reason. In other words, weight relating to any of the above reasons does not merit being billed to the consumers. As such, Nepra has to certify that the allowed FPA is not on account of any of the above reasons and the poor unsuspecting consumers are not getting billed for the inefficiency of the sectoral managers.

Unfortunately, inefficiency and even complacency on part of the various sectoral entities is allowed as it is and both the QTAs and the FPAs are being passed on to the consumers without the needed stringent audit. All of these charges are considered as fate accompli. Consequently, the pervasive inefficiency and complacency continuously allow the DISCOs, etc. to burden the consumers at will.

Copyright Business Recorder, 2024