According to a Business Recorder exclusive, National Electric Power Regulatory Authority (Nepra) has challenged the Prime Minister’s directive to add one percent to the China Pakistan Economic Corridor (CPEC) power sector projects – including projects under implementation – for the entire lifespan of the project to allow for additional security cost.
Nepra’s challenge is based on six valid arguments that include: (i) draft summary moved by the Water and Power Ministry does not clearly stipulate which category of projects is to be given the one percent security cost, (ii) to include the additional cost in those projects that have achieved finality will create legal complexities, (iii) tariff determination already has an in-built security cost in the administrative costs, (iv) for sabotage a separate insurance cost is already provided in the tariff, (v) the lifespan of a project of 30 years would be burdensome for the domestic consumers, and (vi) allowing for the additional cost would be discriminatory against existing Independent Power Producers (IPPs).
This would be as per an official of the Competition Commission of Pakistan (CCP) prima facie discriminatory to similar projects which are not funded by the CPEC.
In addition, the government is reportedly also planning to move the court to challenge Nepra’s sustained refusal to raise the tariff of the Nandipur power project by 34 percent based on actual cost to make it viable in spite of reconsideration requests filed by the government.
In both these instances, the government’s overarching objective appears to be to ensure a surplus electricity by 2018 irrespective of the cost of that electricity to consumers. And sadly, there appears to be a singular lack of realisation on the part of the government that higher electricity tariff would raise input costs for our manufacturers that, in turn, would raise the price of the end product and account for an erosion of the value of each rupee earned by the general public.
.As matters stand today our input prices are higher than those in neighbouring countries which are accounted for by higher tariffs as well as higher taxes (Pakistan’s sales tax is 17 percent across the board while in India and Bangladesh it is around 12 percent). Thus given rampant smuggling across our long porous borders with both India and Afghanistan there is concern that higher input prices would increase the windfall profits that accrue from smuggling.
Additionally, the exporters’ capacity to compete internationally would be further compromised leading to a further weakening of our export revenue thereby putting greater pressure on the government to procure expensive loans from abroad or domestically.
Critics of including one percent security cost in the tariff also point out that the Karachi law and order was a serious issue too prior to the launch of the ongoing operation, comparable if not exceeding the scale and extent of sabotage feared in CPEC projects specially after the success of the Zarb-e-Azb, and yet no security cost was considered appropriate for Karachi electricity consumers.
If, critics logically argue, the government deems it appropriate to add one percent as security cost for the CPEC projects then instead of passing it onto consumers it may be advisable for the government to pick up the tab.
Business Recorder fully supports this suggestion from an economic perspective as any attempt to raise the electricity tariffs would make our manufacturing sector hopelessly uncompetitive even in the domestic market; and hopes that the Sharif administration understands that electricity is a key input not only for the manufacturing sector but also a key component in the household budget of the common man.
Besides any attempt to raise tariffs that are discriminatory (one percent security cost escalation) or necessitated because of poor choice of projects (Nandipur) would simply be challenged in a court of law.