ISLAMABAD: The federal government has reportedly shelved implementation of the AGN Kazi Committee Methodology (KCM) for calculation of Net Hydel Profit (NHP), according to which Wapda has to pay about Rs 500 billion per annum to KPK and Punjab, fearing that the entire power sector will collapse if this formula is implemented, well-informed sources told Business Recorder. Power Division, in its initial draft of Circular Debt Management Plan (CDMP) 2021 prepared in February 2021, had conveyed to higher authorities that if NHP is paid to the provinces as per the AGN Kazi formula, the expected increase in CDMP will be of Rs 495 billion per annum, suggesting rationalization of NHP. However, this supposition has not been made part of the final document of CDMP.
Last year circular debt growth was of Rs 538 billion which is expected to be between Rs 350-400 billion this year, the sources added.
"If we accept the decision on the AGN Kazi formula, the entire sector will become bankrupt as circular debt will cross the Rs 3 trillion mark. The KPK government has already been conveyed that it will be paid Rs 36 billion per annum at the rate of Rs 3 billion per month through Wapda,” sources told this correspondent.
Controversy on NHP calculation was witnessed last year when it came to the knowledge of Power Division that the minutes of Council of Common Interests (CCI) were tampered with at the highest level to "facilitate" one particular province.
Former Secretary Power, Irfan Ali, who raised this matter at different forums verbally and through official letters was made an OSD last year; he has now unceremoniously retired.
On February 18, 2020, Irfan Ali wrote a letter to the then Secretary Inter Provincial Coordination (IPC), Mohammad Ali Shahzada, saying that he wants to bring to his notice “a most serious issue that has grave repercussions”.
The Ministry of IPC issued the following on January 6, 2020 on the 415th meeting of CCI with regard to NHP:
Former Secretary Power, Irfan Ali, in a letter clearly stated that the decisions being communicated were duly approved by the Prime Minister/Chairman CCI. The decision against agenda Item No. 1 was as follows:
"Implementation of Kazi Committee Methodology (KCM) for calculation of Net Hydel Profit (NHP) - After due deliberations on the issue of Net Hydel Profit and the 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 CCl further decided to constitute a committee of technical and financial experts to determine an out of the box solution/methodology to determine NHP. Secretary IPC shall seek nominations from the Federal and Provincial Governments respectively and submit the same to the Chairman CCI/PM for approval. The committee shall furnish its report before the next CCI meeting."
Irfan Ali, in his letter, also wrote that the Power Division has now received another letter from the IPC Division of February 11, 2020 with the same reference number on the subject of "Final decisions of 41st meeting of the CCI.”
"In this letter the decision against agenda Item No. 1 has been changed and reads as follows: After due deliberations on the issue of NHP and KCM, the CCI decided that the previous decisions of the CCI on this subject would remain intact. In light of previous CCI decision the CCI further decided to constitute a committee of technical and financial experts to propose an out of box solution for the payment of NHP to entitled provinces. Secretary IPC shall seek nominations from the Federal and Provincial Governments respectively and submit the same to the Chairman CCI/PM for approval. The subject committee shall furnish its report before the next CCI meeting."
"It is quite clear that through the letter of February 11, 2020, the meaning and the intent of the decision of the CCI has been completely changed," wrote Irfan Ali in his letter.
According to him, the decision reflected in the letter of January 6, 2020 has been conveyed conclusively and the text reflected the actual decision taken in the CCI. With the changed text on February 11, 2020 the spirit of the CCI decision was tampered with, he said, and requested Secretary IPC to immediately look into this matter and conduct an inquiry to fix responsibility. Power Division also requested IPC Division to withdraw the letter of February 11, 2020 as this actually violates the Prime Minister's decision during the CCI meeting.
The then Secretary Power had also expressed his apprehensions that any nomination against a wrongly changed decision shall not serve the purpose, requesting him to rectify it.
On April 24, 2018, the then Minister for Water and Power had also expressed reservation about the AGN Kazi Committee Methodology saying that the KCM could not predict the quantum of profits to be calculated at that time at the busbar as the generation mix comprises thermal, coal and hydel resources.
Wapda claims that the KCM is not according to the Article 161 (2) of the Constitution and that rendering backward calculation of consumer end tariff is too complex to arrive at any acceptable amount for all stakeholders. Furthermore, Wapda contends that it recovers less than its cost of generation and hence, there is no profit. They have stated the example of various countries where the Provinces receive 10% to 45% of the net revenue as royalty.
The Constitution refers to net profits earned from the bulk generation of power at a hydroelectric station and further explains that the net profits shall be computed by deducting from the revenues accruing from the bulk supply of power from the busbars of a hydroelectric station, the operating expenses of the station. The Constitution does not see NHP as a pass-through item or a further addition to the cost.
Former Secretary Power was of the view that the issue of NHP and KCM along with various calculations/computations and the factors affecting them have been discussed in detail.
"One hopes that a healthy and constructive discussion can be generated through deliberations, leading to NHP being calculated and provided to the Provinces as per the Constitution of Pakistan," Irfan Ali had concluded.