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WAPDA has demanded automatic tariff adjustment formula but not ready to follow the laid-down procedure for any change in the tariff

Oct 02 - 08, 2000

With the persistent and significant increase in crude oil price, furnace oil has also became expensive and touching new heights in the domestic market. Furnace oil is a major fuel used in power generation in Pakistan. While nearly 25 per cent of the thermal power generation capacity of WAPDA uses furnace oil, KESC's almost entire power generation is dependent on furnace oil. WAPDA, as an interim measure, was allowed to raise 13 paisa per unit but KESC was denied the same.

Interestingly, it is a common belief which is incorrect to a large extent, that any increase in tariff allowed to WAPDA would also be sufficient for KESC in maintaining its cashflow, take care of routine expenditure and undertake developmental programmes. Another, step-motherly treatment given to KESC is that while WAPDA is allowed increase in tariff with immediate effect, KESC does not get the same benefit for months.

Fully aware of the lengthy legal procedure to be followed and the counter arguments against the proposed increase in tariff, reportedly WAPDA has not filed any formal petition with National Power Regulatory Authority (NEPRA). The request for increase has been made by the Ministry of Water and Power. It is an attempt to by-pass the regulatory framework created as a prerequisite to privatization. Creation of regulatory authorities was the demand of multilateral lenders. They had also provided funds for the restructuring of public sector utilities — including support for the creation of NEPRA.

According to the laid-down procedure a utility has to file a formal petition, with the concerned authority, explaining the need for the proposed increase. The utility has to publish advertisements in newspapers, at its expenses, giving the highlights of the petition and sought comments from all the stakeholders. After hearing arguments and counter-arguments, the concerned regulatory authority has the power to allow the desired increase or reject the request outright.

After receiving the request from the Ministry, NEPRA has asked WAPDA to file a formal petition and follow the stipulated procedure. This is not the first time that WAPDA has been asked to approach NEPRA, the utility has gone through this procedure in the past. The highups at WAPDA know exactly what is stipulated procedure. However, due to increasing resentment from consumers, they also knew how difficult it would be for them to convince consumers as well as NEPRA to allow the increase. WAPDA has also expressed its inability to pay the fee and suggested that the Ministry should bear the expenses. In yet another attempt, WAPDA has taken a somersault by questioning the mandate assigned to NEPRA.

The stance taken by WAPDA has opened the Pandora box. Despite enjoying the permission to increase tariff, as an interim measure, WAPDA authorities do not want to follow the prescribed procedure. A question arises, is WAPDA or Ministry above the law? In reality WAPDA should not have exhibited such an attitude. If the laws of the country demand following a stipulated procedure, WAPDA has no other option but to comply with the laws.

Saying this much, one should also keep the fact in mind that as such thermal power generation, transmission and distribution are no longer the mandate of WAPDA. The Power Wing of WAPDA has already been divided into three generation companies (GENCOs), a National Transmission and Despatch Company (NTDC) and eight distribution companies (DISCOs). Therefore, the competent entities, who could demand adjustment in tariff, are the DISCOs. As such all the above mentioned companies are now independent entities incorporated under Companies Ordinance 1984 and each DISCO should file a separate petition. Even the Ministry is not eligible to ask NEPRA to revise tariff. Both WAPDA and KESC have filed separate petitions for increase in tariff in the past.

Another, interesting point is that NEPRA has been asked to approve the proposed automatic tariff adjustment formula. Despite, WAPDA challenging NEPRA mandate, the Authority has asked WAPDA to: submit facts and figures in support of its plea and publish contents of its petition and other relevant details in the newspapers to make all the stakeholders aware of its viewpoint before a formal hearing could commence. The proposed formula has to be vetted during public hearing before any decision by NEPRA.

As the first step, it is necessary to clarify any ambiguity in the minds of WAPDA officials regarding the mandate of NEPRA. The second step is to appoint competent professionals at NEPRA before commencing the proceedings. Many retired persons from WAPDA had held the key positions at NEPRA in the past and have very generously accepted WAPDA's point of view. They hardly took any notice of mismanagement, corruption and inefficiencies prevailing in WAPDA. Interestingly, NEPRA allowed increase in tariff in the past but never linked it to the huge T&D losses — the major reason for poor cashflow of WAPDA. NEPRA has been openly alleged for acting as a rubber stamp in the past. The prevailing situation is a test of autonomy and competence of NEPRA. Will it be able to take a firm stand or succumb to pressure from WAPDA?