ISLAMABAD: National Electric Power Regulatory Authority (Nepra) has accorded approval to an increase in hydel tariff by Rs 1.25 per unit from Rs 1.10 per unit aimed at facilitating payments of Rs 40 billion of Net Hydel Profit (NHP) to KPK as per agreement.

With the current increase in hydel tariff by Rs 1.25 per unit, total hydel tariff has risen to Rs 4.05 per unit, which implies that the consumers have to pay an additional Rs 40 billion to Wapda.

Nepra announced the decision on a review petition filed by the Water and Power Development Authority (Wapda) which has failed to develop hydel power projects as per schedule with the management reportedly focused on meetings.

As per the petitioner, Nepra determined bulk supply tariff for Wapda hydroelectric for FY 2015-16 on November 13, 2015 in which Nepra allowed Rs.18.704 billion as an interim arrangement against previously allowed Rs.6.000 billion as NHP to the KPK. The nature of the component of revenue requirement was also changed from fixed to variable and NHP amount of Rs 18.704 billion was assessed by applying rate of Rs.1.10/kWh on the projected generation of 17,004 GWh during FY 2015-16 from hydel power stations situated in KPK.

Wapda argued that given the same analogy, the nature of NHP arrears amounted to Rs 25 billion with Rs 15 billion variable and maintained that it should be applied to KPK generation as hydel related charges as proposed by Wapda in the supplementary tariff petition. During the course of hearing, the main emphasis of the interveners was that the financial liability to pay the NHP could not be made with a retrospective effect. It may be clarified that any deliberation upon that aspect would be tantamount to questioning the vires of a decision of the apex constitutional forum for the sector and may be beyond the scope of the powers and functions of Nepra. The Authority considered that the amount of NHP arrears amounting to Rs 70 billion as approved by the CCI in its meeting of February 29, 2016 is a fixed amount that has to be paid to the KPK in the following years: (i) Rs 25 billion in 2016; (ii) Rs 15 billion in 2017; (iii) Rs 15 billion in 2018; and (iv) Rs 15 billion in 2019.

In Authority’s opinion, to recover the full amount, the arrears are required to be treated under the capacity (fixed) charges rather than under the variable charges (generation based). The generation based recovery will lead to either over- or under-recovery of the arrear amount, which will further complicate the matter and result in another adjustment in the subsequent arrears. In view of the foregoing, it was decided that the amount of NHP arrears would be recovered through a capacity charge and not through generation.

It was contended by the petitioner that Nepra while incorporating NHP amount of Rs 18.704 billion by applying rate of Rs.1.10/kWh on the projected generation of 17,004 GWh during FY 2015-16 from hydel power stations situated in KPK also directed Wapda in its determination of November 13, 2015 to bring the matter of NHP payable to provinces before the CCI, through Ministry of Water & Power.

The petitioner further explained that on February 25, 2016, in a meeting chaired by Federal Minister Finance, represented by the Minister for Water & Power and the Government of KPK represented by the Chief Minister, KPK agreed and signed an MoU on certain issues including un-capping of NHP payable to KPK and settlement of past arrears on this account, which was countersigned by the Federal Minister Finance. Subsequently, CCI in its decision during the meeting held on February 29, 2016 concurred with the MoU and directed Wapda to file a tariff petition as agreed in the MoU.

In view of the decisions, it becomes obligatory on Wapda to pay NHP @ Rs.1.10/kWh on the projected generation of 17,004 GWh during FY 2015-16 from hydel power stations situated in KPK. The revised bulk supply tariff for FY 2015-16 determined by Nepra was notified by GoP on March 7, 2016, therefore, Wapda Hydroelectric could not bill NHP at the revised rates till March 6, 2016, resultantly, NHP arrears up to 6th March 2016 during FY 2015-16 (current year) accumulated to Rs.9.298 billion.

According to Nepra, recovery of current year NHP arrears of Rs.9.298 billion has been sought by Wapda through a petition for modification of already determined tariff over a spread of one year from date of notification; this would be in addition to regular tariff for NHP already determined by Nepra in bulk supply tariff determination on January 8, 2016, which will streamline the NHP payments as well as avoid the complications of regulatory revenue gap in future.

The Authority stated that having considered the respective contentions of the parties, in its opinion the MoU signed between the Federal Government and Government of KPK and as endorsed by CCI on February 29, 2016 has only given its decision on previous NHP arrears and it has not made any decision on NHP (rate) to be used for future NHP calculation. The petitioner stated that NHP amount, calculated on the basis of Rs. 1.10 kWh applicable on KPK generation, currently has left over amount of Rs 9.3 billion. The amount of Rs 9.3 billion increased due to late notification of the Authority’s decision in case of Wapda hydroelectric bulk supply tariff for FY 2016, referred to as “the determination”. The determination clearly provides an adjustment of the arrear amount (in the next tariff petition) on account of NHP payment at a rate of Rs 1.10/kWh. In view thereof, Rs 9.3 billion was therefore disallowed at this stage and instead was to be adjusted at the time of next tariff petition based on the actual unit generated during FY 2016 from the power plant located in the Province of KPK.

It was the submission of the petitioner that as per an agreed MoU, it is mandatory to pay Rs.25 billion to GoKPK by end of the current fiscal year i.e. FY 2015-16. Keeping in view the processing time required for determination of tariff, it will be, however, difficult to arrange the requisite amount through tariff in the remaining period of the current fiscal year.

Therefore, subsequent to a follow-up meeting of the Finance Minister with the Ministry of Water and Power and GoKPK and in view of the timelines agreed in the MoU, Wapda was directed by Ministry of Water & Power on March 28, 2016 to take up a loan of the same amount and subsequently take the amount of principal and servicing of the loan in the tariff petition. Accordingly, Wapda in consultation with Ministry of Finance and Ministry of Water & Power has arranged a bank loan for payment of NHP arrears at the mark-up cost of 7.5% per annum (approximately) translating into a tentative mark-up cost of Rs 1,875 million which may up the NHP arrears instalment of Rs 15,000 million for FY 2017-18 and justly claimed by Wapda in the supplementary tariff petition.

According to the petitioner, in pursuance to CCI decision, Wapda hydroelectric is bound to pay Rs 25 billion in the current financial year i.e. FY 2016. For this purpose, the petitioner has been asked by the Ministry of Water and Power through a letter dated March 20, 2016 that “...to build Rs 25 billion in the tariff petition, WAPDA may take up a loan of the same amount and subsequently take the amount of principal and servicing of the loan in the tariff petition. Further, a summary to CCI may be drafted to include the financial cost incurred in taking up the loan of Rs 25 billion in the settled amount of Rs 70 billion.”

The petitioner’s revenue requirement approved for FY 2016 is Rs 89 billion. The revenue requirement covers the expense and WACC-based return on investment. Therefore, the petitioner does not have the capacity to pay the 25 billion in the current FY to KPK out of his own revenue stream. If the petitioner is required to pay the arrear amount of Rs 25 billion in the current fiscal year to Go KPK through a loan, then as a matter of principle, interest cost will be a prudent and justifiable cost which would rise due to implementation of the CCI decision for which the petitioner cannot be held liable.

In Nepra’s opinion, since the Federal Government had already agreed to include the interest charge through CCI, in the agreed NHP arrears of Rs 70 billion in the coming period, therefore, Rs 1.875 billion or actual interest cost may be allowed when the backing of CCI becomes available as CCI undisputedly is the right forum to deal with the matter related to NHP payable to the provinces including matters related to NHP financing cost. Thus the request for allowance of interest cost amounting to Rs 1.875 billion is disallowed.

Based on the discussion, Nepra partly accepted the petition for modification and additional tariff assessed for Wapda hydroelectric on the basis of expected installed capacity of 6902.4 MW. This tariff would be subject to adjustment in case there is any change in expected installed capacity of 6902.4 MW during the applicable period.—MUSHTAQ GHUMMAN