Nepra rejects requests for recovery of Rs35bn

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ISLAMABAD: In an apparent snub to the government, the National Electric Power Regulatory Authority (Nepra) has rejected requests by power distribution companies to recover more than Rs35 billion from consumers on account of additional system losses. The decision has come on review petitions of Lahore, Quetta, Multan and Hyderabad electric supply companies (Lesco, Qesco, Mepco and Hesco) and sets aside a government decision to allow recovery of loans and the resultant mark-up from consumers along with the cost of higher system losses — both resulting from inefficiencies of the companies.

In its review petition, Hesco had demanded that consumers be charged for 23 per cent transmission and distribution (T&D) losses instead of 15pc permitted by Nepra. Lesco had requested Nepra to allow 13.2pc T&D losses in consumer tariff, instead of 9.8pc.

Likewise, Qesco had sought 18pc losses in power tariff, instead of 15pc allowed by Nepra while Mepco had demanded higher revenue on account of wheeling charges, distribution margin, increase in cost of Wapda pensioners and sales mix.

One per cent change in T&D losses works out to about Rs7bn if the current average consumer tariff is taken into account.

Except for Qesco which has been given 3pc additional cushion to accommodate law and order expenses in Balochistan, Nepra has rejected review petitions of the other distribution companies. As such, Qesco will now charge 18pc losses to consumers, instead of 15pc.

In the case of Lesco, the regulator found that it had erroneously been given a benefit of Rs5.7bn which was withdrawn in the review judgment.

In separate judgments, Nepra held that system losses should have been on a declining scale under a number of past determinations and standards set by it, but the distribution companies had failed to meet those targets.

Nepra said that it was guided not just by its own rules, jurisdiction and consumer interests but also by two recent decisions of the Supreme Court and the Lahore High Court which barred burdening of honest consumers for theft and inefficiencies of power companies.

Before finalising latest determinations, the regulator said it had also taken advantage of a system loss study conducted by the United States Agency for International Development on the request of the government.

On May 28, the economic coordination committee of the cabinet headed by Finance Minister Ishaq Dar had decided to charge consumers the cost of about 3pc additional technical losses and interest on power sector loans through an average of Rs2.35 per unit impact in power tariff to meet reduced so-called subsidies on power losses as required by the International Monetary Fund.

“The ECC also considered and approved a summary of the Ministry of Water and Power for issuance of policy guidelines to Nepra to incorporate debt servicing on actual basis in revenue requirements of distribution companies which would be adjusted in tariff of Discos on annual basis,” the finance ministry had said.

Under that decision, about Rs147bn worth of additional loans and syndicated term finance certificates contracted over the past couple of years by the government or on its sovereign guarantee were also to be financed through the consumer tariff. The debt servicing cost on this account was estimated at about Rs10bn.

A previous dispensation of similar debt stock of about Rs306bn taken over by the federal government a few years ago was made part of the federal budget, but the government had given a commitment to the IMF to reduce power sector burden on budget and instead pass it on to consumers.

The ECC had also decided that average system losses be kept unchanged at 15.75pc as they were two years ago, instead of the 12.82pc as decided by Nepra for 2013-14.

The distribution companies now claim that their T&D losses, known as technical losses, stood at 17.55pc (average of all Discos) for 2013-14.

A Nepra official said the federal government did not have the powers under the Nepra Act to issue policy guidelines on tariff standards and other benchmarks that become part of the tariff at any stage.

Published in Dawn, June 16th, 2014

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