National Electric Power Regulatory Authority (Nepra) has reportedly stunned the ministry of water and power by strongly opposing the proposed amendments in the Nepra Act 1997, saying any such attempt would destroy the autonomy of the regulator and reduce its role to a rubber stamp, sources close to Chairman Nepra told Business Recorder Friday.
The Council of Common Interests (CCI), sources said, has deferred consideration of a summary of the cabinet division purportedly prepared on the guidelines of water and power ministry after chief ministers of two provinces and Nepra conflicted on the draft amendments. Chairman Nepra Brigadier Tariq Saddozi (Retd) attended the meeting as an special invitee.
The Nepra, sources said, in its written reaction to the proposed amendments said that the preliminary review of the summary along with its annexure transpires that various policy level changes having far-reaching consequences and repercussions on the power sector have been proposed by the ministry of water and power (MOWP) in the Nepra Act, 1997.
These include (a) power of the federal government to issue binding directives to NEPRA, (b) clipping of its enforcement power with respect to government-owned companies, (c) depriving Nepra of its administrative and operational autonomy and independence, (d) reconstitution of the authority by doing away with provincial representation, (e) determination of tariff components vs. determination of tariff, (f) doing away with the licensing regime, (g) introduction of Appellate Tribunal etc.
Proposed amendments essentially require that Nepra can’t regulate federal government-owned entities which constitute the largest chunk of total power sector assets. The proposed amendments lead to an apparent conflict of interest and have been drafted without inviting meaningful participation from the key stakeholders ie provinces, Nepra (the custodian of the Nepra Act), the licensees of Nepra and consumers, whose interest will be affected the most.
The Nepra has also complained that draft amendments as presented before the CCI have not even been shared with Nepra even, which has an almost 20 years of experience of administering and enforcing the Nepra Act, 1997 and the power sector. Initially a draft was shared by the cabinet division vide letter date May 19, 2016 for input and comments of Nepra and detailed comments were provided on June 10, 2016.
However, the present draft is materially different from the previously shared draft and even the comments and observations of Nepra submitted earlier have not been considered. The cabinet division in its letter of June 22, 2016 proposed that stakeholder consultation be done on the present amendments but the same has been presented in undue haste for approval of CCI without going through a process of meaningful stakeholder consultation.
The sources said Nepra, based on its experience of the sector and in view of the problems faced in implementation and administration of the NEPRA Act, 1997, and establishment of competitive market, proposed certain amendments in January 2015 which were placed on website to ensure purposeful stakeholder and general public consultation, and thereafter submitted to the cabinet division.
However the Nepra’s proposals have not been made part of the summary placed before the CCI for consideration. Considering the quantum, magnitude and impact of the proposed changes, it is not possible to comment thereon in this short period of time, however, based on preliminary review the Nepra has brought following issues to the attention of CCI: (i) the proposed amendments aim to undo the power sector reform programme of 1992, instead of moving towards a liberalised and competitive market, the proposed amendments aim at concentrating all powers in the hands of the federal government at the expense of the regulator and will effectually roll back the power sector reforms; (ii) the proposed amendments undermine the financial and operational autonomy of the authority, which is contrary to the principles settled by the august Supreme Court and best international practices; (iii) tariff determination is proposed to be made subject to the National Electricity Policy, Plan and Tariff Policy to be made by the federal government and also subject to binding directions of the federal government. This will practically strip Nepra of its core function to determine tariff. The operations of the authority are proposed to be subject to binding directions of the federal government and it shall be the final arbiter to decide whether or not the said directions are in public interest. The proposed amendments are against the spirit of the Nepra Act and are also in contradiction to the basic functions of the Authority; (iv) the provincial representation of members has been done away with and discretion has been given to the federal government to appoint chairman and members of the authority by lowering the experience requirement. These amendments are in clear violation of the Constitution and amounts to usurpation of the rights of the provinces recognised by the 18th constitutional amendment and needs to be appreciated, that the object of provincial representation was to ensure and guarantee the legitimate constitutional right of provinces in governance and regulation of power sector; (v) the licensing requirement for generation companies has been done away with on the pretext of competitive market, however, this proposed amendment has no nexus with competition in markets. It is pertinent to mention that internationally several models exist where there is a licensing requirement and vibrant competitive market such as Turkey. The requirement to do away with licensing is premature and requires further deliberations since it alters the market structure and would hinder its smooth functioning; (vi) the federal government shall be empowered to prescribe rules without any consultation with the authority. Most importantly the federal government shall be empowered to set performance standards and codes for the industry, which practically amounts to a conflict of interest, since the bull of the sector is owned and controlled by the federal government; (vii) the powers of the authority to initiate investigation and impose penalties on wholly owned federal government entities have been made subject to prior permission of the federal government. This implies that the federal government will be judging its own cause. Further, an apparent discriminatory treatment between the federal government and provincial/ private sector companies has been proposed which goes against the very concept of competitive markets, constitution and will ultimately affect the private sector and provincial funded investment in electricity sector of Pakistan; (viii) and majority of the proposed amendments are inconsistent with the existing provisions of the NEPRA Act, 1997.
Further, there are lots of inconsistencies within different proposed provisions. The amendments need to be harmonised with the existing legal framework.
The NEPRA is also of the view that on the pretext of introducing a competitive market, various provisions have been added which effectively deprive NEPRA of its existing powers and functions and to give the federal government a dominant position in the sector.
This will destroy the autonomy of the regulator and is also against the international best practices. Depriving Nepra of its autonomy and powers may cause a distrust among the investors and will actually limit the role of regulator to that of a rubber stamp.
The independence of the regulator is paramount in a liberalised and competitive electricity sector and any transgression thereon will impede the growth of a vibrant power sector in Pakistan. “The draft amendments appear to be made in haste without following due process of stakeholder consultation and are not supported as proposed,” the sources said adding that Nepra has sought more time to provide meaningful comments on the proposed amendments.
The sources further said that NEPRA has recommended that an independent committee on the same lines as committee to review Draft Electricity Act, 2012, may be constituted comprising former secretaries of MOWP, chairman/members of Nepra, international consultant, notable legal professionals and representatives of provincial government to assess the proposed amendments and submit a report thereof to CCI for consideration after conducting meaningful consultations with the stakeholders.
Unconfirmed reports suggest that Nepra also used its good relations with provinces to seek further time on the amendments.