In a major development, Power Division has asserted that AGN Kazi Methodology (KCM) meant to calculate Net Hydel Profit (NHP) and collection of NHP from consumers are unconstitutional and illegal and minutes of CCI meeting held on December 23, 2019 have been tampered with, well informed sources told Business Recorder.
Power Division, sources said, had raised this issue of NHP methodology at the Council of Common Interests held on December 23, 2019 with Prime Minister Imran Khan in the chair.
The decision of the CCI communicated to the stakeholders is as follows: "After due deliberations on the issue of NHP and Kazi Committee Methodology, the CCI decided that the previous decisions of the CCI on this subject would remain intact. In the light of previous CCI decision on the subject, the CCI further decided to constitute a committee of technical and financial experts to determine out of the box solution/methodology to determine NHP. Secretary Inter Provincial Coordination (IPC) shall seek nominations from the federal and provincial governments respectively and submit it to the Prime Minister who is also Chairman of CCI. The committee will furnish its report before the next CCI meeting."
Power Division states that the minutes of CCI with regard to NHP have been tampered with and the essence of the decision has been changed.
Power Division, sources said, has registered its strong protest on alteration in minutes at the appropriate level.
There is a feeling that some "influential" from the "to be affected" province misrepresented the Prime Minister on the recorded minutes and incorporated changes without taking the concerned Ministry on board.
"There is also a strong impression that the current criticism against the Power Division under the garb of performance of power sector is actually a move of those influential who wanted the implementation on Kazi methodology for NHP calculation," said an insider.
According to the Constitution of Pakistan, NHP would be given from the revenue of Wapda at bus bars of each hydroelectric station. A report on this issue had been submitted to the committee but the chairman of the committee was replaced as it was feared that the decision would be against use of the Kazi methodology.
National Electric Power Regulatory Authority (Nepra) calculates Wapda's revenue each year and notifies it.
The sources said, CCI should decide the share of Wapda and NHP from this revenue after deducting O&M etc.
Nepra, in its recent presentation to the Prime Minister, also suggested that NHP should be shifted to the fiscal side at the rate of Rs 35 billion per annum approximately.
Official documents available with Business Recorder reveal that, on December 23, 2019 pursuant to the CCI decision of September 24, 2018, the main Committee headed by Deputy Chairman, Planning Commission (DCPC) in its first meeting constituted a Technical Sub Committee (TSC) headed by Secretary, Power Division, to deliberate upon the issue of determination of rates/net profits in the light of decision of CCl. The TSC submitted its report to main committee for further deliberations. Main committee deliberated on the report of TSC. Last meeting was held on Dec 19, 2019 and report of the Committee is to be presented by DCPC.
The DCPC gave a comprehensive presentation on the report of the Committee setup by CCl. He informed that Committee held eight meetings and deliberated in detail on the findings of Technical Sub-Committee. He briefly stated history of payment/calculation of NHP from 1978 to 2017. He pointed out that the MoU signed by the Punjab and Khyber Pakhtunkhwa (KP) with Federal Govt. was the full & final settlement up to 2016 eroding all previous disputes and claims, through a non-KCM methodology.
The CCl declared NHP payments @ Rs 1.10/unit for present and onward calculations. However, on the objection of the government of KP, the CCl subsequently in 2017 deleted the word "onward" from its 2016 decision. Moreover, Nepra allowed NHP @ Rs 1.16/unit in Wapda tariff as a pass-through item with 50/0 annual indexation. The DCPC also underscored the views of Power Division, Water Resources Division, Governments of the Punjab and KP, and on the basis of difference of opinion presented his findings as follows: (i) constitutional provision [Article 161(2)] is unambiguous and requires that 'the net profit earned by Federal Government shall be paid to the Province in which a hydro-electric station is situated; (ii) NHP emanates from "a" hydro electric station. It is not linked with the profit/losses of other power generation stations established by any undertaking established or administered by the Federal Government; (iii) several decisions, spanning over almost three decades by Constitutional Forums such as NFC, Federal Cabinet, CCI and Supreme Court of Pakistan regarding NHP are settled and cannot be re-opened; (iv) Article 154(7) of the Constitution provides the remedy of Joint Session of the Parliament in case any party is dissatisfied with decision of CCl; (v) KCM works backwards from the consumer price and is thus tariff neutral; (vi) Technical Sub-Committee has confirmed that GoKP and GoPb have calculated NHP as per KCM; and (vii) CPPA-G (instead of Wapda) is now the revenue collecting agency for the power sector.
The DCPC recommended that Federal Government (the Guarantor under President's Order No. 3 of 1991) should ensure payment of NHP, as worked out by GoPb and GoKP and confirmed by Technical Sub-Committee as being in conformity with KCM, to the entitled provinces.
According to sources, Secretary, Power Division informed the CCI that constitutionally payment of NHP to provinces is their right. However, KCM is not implementable. Moreover, the CCl has also endorsed non KCM methodologies over the years. KCM can be detrimental to national interest. Nepra has the mandate to determine generation tariff at bus bar of every hydel station. NHP is now also applicable to AJK.
Minister for Water Resources, Faisal Wawda noted that KCM was a 35 year old formula. Wapda is not earning any profit. Hence, KCM is no longer practicable due to changed ground realities. Moreover, KCM based NHP would increase tariff or be passed on to the consumers as WAPDA has no other source to make NHP payments except through electricity tariff.
The Chief Minister KP expressed disagreement to the view point' of Minister for Water Resources and Secretary, Power Division. He endorsed the recommendations of the KCM committee. The Adviser to CM KP on Energy referred to past decisions of CCI and stated that CCI in 2017 re-iterated its earlier decision on KCM. He argued that NHP is being diverted towards payments to expensive thermal power plants to subsidize overall tariff implementation of KCM for calculation of NHP is a constitutional and legal obligation of all parties. He opined that NHP should be calculated on KCM which is tariff neutral and places no additional burden on consumers as KCM works backwards from what the consumer has already paid. He added that CCl was the constitutional forum to decide NHP issue.
The Special Assistant to the Prime Minister (SAPM) on Petroleum Division clarified that after unbundling of WAPDA, regulatory regime had changed and now tariff is determined by NEPRA. He pointed out that if NHP is to be calculated on KCM, it will result in an increase of Rs 7.50 billion in tariff besides escalation in circular debt up to Rs 7 trillion till 2030. The Federal Government will either have to pass on this increase to consumers or put Rs 100 billion burden on Government exchequer, which are not practically viable options.
The Chief Secretary, Punjab was of the view that determination of rates through KCM will drastically burden electricity consumers of Punjab that consumes 70 per cent of the total electricity generation of the country. Therefore, NHP should be calculated as per amount of Rs 51 billion as NHP is overdue from WAPDA which should be settled on top priority.
The Prime Minister emphasized that the NHP issue requires out of the box solutions keeping in view the present circumstances.
The then Minister for Planning, Development & Special Initiatives, Khusro Bakhtiar clarified that Article 161 (2) clearly stipulates that net profit earned by the Federal Government from the bulk generation of power at a hydroelectric station shall be paid to the province in which the hydroelectric station is situated. However, the KCM was an interpretation decided by CCl for calculation of NHP. The CCl can revisit its past decision on the basis of changed ground realities and different resources of power generation.
The Minister for Power Division stated that NHP should be based on a "practical, consensus based formula" in line with Constitutional provisions. He proposed to set up a Technical Sub-Committee including economists to determine a unified formula for calculation of NHP within a given timeline.
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