Unfair Net hydel profit share

Water and Power Development Authority

Water and power development authority

 share

Steps should be taken to ensure actual amount of hydel profits to Khyber Pakhtunkhwa

By Tahir Ali

http://www.jang.com.pk/thenews/sep2011-weekly/nos-18-09-2011/pol1.htm#5

The debate on the net hydel profit (NHP) arrears the Water and Power Development Authority (WAPDA) owes to Khyber Pakhtunkhwa has resurfaced with an all parties’ conference in Peshawar, unanimously calling upon the federal government to pay the NHP arrears of Rs258 billion as soon as possible.

Held under the chairmanship of Chief Minister Amir Haider Khan Hoti and attended by all major political parties within or without the assemblies, the conference expressed concern over capping of NHP at Rs6 billion and resolved to back the KP government in its NHP endeavours.

Senator Haji Muhammad Adeel, former finance minister and member of KP national finance commission (NFC) team, laments that WAPDA has capped the annual NHP at Rs6bn against the dictates of AGN Qazi formula (QF), which was unanimously endorsed by NFC meeting in February 1988, approved by Council of Common Interests in January 1991 and validated by presidential NFC order No3 of 1991. The NFC had recommended increase of 10 percent on Rs6 billion for future years. He says as per KP’s calculation based on the QF, its annual NHP for 2010-11 stands at Rs40bn against Rs6bn.

“While Punjab is being paid Rs5bn for around 100MW of electricity produced at Ghazi Barotha power project, KP is given Rs6bn despite the fact that it produces around 4000MW and power tariff has been increased manifold since then,” he says.

Besides the fact that Rs6bn was determined based on power tariffs of 1987 at the rate of Rs0.33 per unit, in dollar terms in 1991, Rs6bn equaled $200 million. Now it can fetch around $70 million with the current rate of return.

The Arbitration Tribunal (AT) headed by Justice Ajmal Mian had agreed to QF for calculating NHP for 1991-92 but did not apply the QF mechanism for the years onward and rather adhered to a mechanism of compound indexation of 10 percent per year in NHP, using Rs6.9bn as benchmark which was calculated on the basis of QF by WAPDA for 1991. While the provincial conference projected the arrears at Rs258bn,

Adeel says it is around Rs300bn now. “Apart from Rs75bn NHP arrears (the AT decreed it at Rs110bn but Rs35bn have been paid to the province till now), as per QF and AT award, WAPDA owes us over Rs55bn for 10 percent interest on the outstanding amount and Rs203bn for due but unpaid increased NHP amount post AT award and another Rs40 billion as this year’s NHP,” he says.

Had that period and amount also been included, KP’s outstanding amount against WAPDA would have been much more than at present. It further claimed that according to the QF, the revenues should include all the revenues paid by the consumers, including surcharge and additional surcharges.

WAPDA, however, proposed Rs72bn against Rs83bn already paid, thus claiming Rs10.9bn as overpayment to KP and said that surcharges of Rs829bn and other revenues of Rs195bn could not be used for NHP determination. It also stubbornly rejected as unconstitutional the QF.

KP, realising that WAPDA is too weak financially or reluctant to provide the money, has focussed on the federal government being guarantor of the AT award and rightly so.

Para 3 and 4 of the Presidential NFC order No3 of 1991 states: The net profits from the bulk generation of power at the hydro-electric stations located in the provinces shall be paid by the concerned undertaking established or administered by the federal government (i.e. WAPDA) to the provinces and that the federal government shall guarantee payment of net profits to the provinces concerned by the above undertaking on a regular basis.

Based on the NFC award, AT award was binding on all parties. It had been signed by the then WAPDA chairman Tariq Hamid and secretary finance KP and endorsed by the federal secretary water and power from the federal government. But WAPDA challenged the award in a civil court. Sensing betrayed, KP also went to the Supreme Court against this move where the case is still pending.

When the present ANP-led coalition government was installed, it soon formed an all parties Jirga headed by CM Hoti that met Prime Minister Yousaf Raza Gilani in September 2008 and apprised him of their grievances on capped annual NHP and arrears.

The PM promised to solve the problems and formed a committee of experts to present its report within two months on the issues. Later in October 2009, the PM announced payment of Rs110 billion arrears on behalf of WAPDA in five annual installments to be given on July 1 each year with the promise to release first installment of Rs10 but it was paid only in December when the provincial NFC team threatened boycott of its proceedings.

The technical committee is yet to give its decision. KP finance ministry’s white paper says that while participating in the committee, KP shall not accept reopening of issues already decided/settled, that any settlement must conform to the parameters of AT and NFC awards, and that calculation of NHP shall be in accordance with QF.

Last year, the federal government paid Rs25bn simultaneously but it has released only Rs4.6bn till date and intends to release the amount in bits and pieces.

Aftab Ahmad Khan Sherpao, president of Pakistan Peoples Party (S) says the coalition at the centre and province should have no problem in increasing annual NHP, giving the province its arrears along with mark up for the entire period. “Our party would support the government in its bid to get NHP arrears and increase the NHP annual amount as a matter of provincial right. But in case they fail to do so, ANP should come out of the federal government,” he says.

“Arbitration was unnecessary in the matter. NHP is the constitutional right that was accepted by AG N Qazi commission, established in 1987 by CCI and guaranteed by constitutional provisions and no government could have denied NHP to the province. However KP government must stick to the QF and never renege on provincial rights,” he adds.

Sub-clause 2 of Article 157 of the Constitution clearly empowers the provinces to construct power projects, levy taxes on, and fix tariff, for electricity, construct distribution and transmission lines for distribution of power and the provinces should insist on provincial management rather than the central bodies like WAPDA, Nepra and Pepco, etc, but provinces have reneged on their rights.

 

””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””

Text of the article as it was sent to the paper

The Net Hydel Profit dispute between KP and WAPDA/federal govt

 

By Tahir Ali

 

The debate on the net hydel profit (NHP) arrears the Water and Power Development Authority (WAPDA) has to pay to Khyber Pakhtunkhwa resurfaced again with an all parties’ conference in Peshawar recently calling upon the federal government to pay the due NHP arrears of Rs258 billion as soon as possible.

 

Held under the chairmanship of chief minister Amir Haider Khan Hoti and attended by all major political parties, the conference expressed concern over capping of NHP at Rs6 billion and resolved to back the KP government in its endeavours to get NHP arrears.

 

Khyber Pakhtunkhwa intends to take up the issue with the federal government forcefully in coming days and the issue, inter alia, has the potential to harm the PPP-ANP coalition if it remains unresolved.

 

The Arbitration Tribunal (AT) headed by Justice Ajmal Mian had decreed that WAPDA would pay Rs110bn NHP arrears in equal instalments of Rs25 billion.  Last year, the federal government paid Rs25bn but it has released only Rs4.6bn till date and intends to release the amount in bits and pieces. KP abhors this scenario as it has projected the money in its revenue estimates and the denial or delaying of the amount could expose the province to financial problems.

 

CM Hoti recently said Khyber Pakhtunkhwa wanted the NHP amount in cash and would not accept its adjustment against federal government loans as was being suggested.

 

Senator Haji Muhammad Adeel, former KP finance minister and member of KP national finance commission (NFC) team says WAPDA owes us around Rs300bn now. “Apart from Rs75bn NHP arrears, as per AGN Qazi formula (QF) and AT award, WAPDA owes us over Rs55bn for 10 per cent interest on the outstanding amount and Rs203bn for due but unpaid increased NHP amount post AT award and another Rs40 billion as this year’s NHP,” he says.

 

Adeel says as per KP’s calculation based on the QF, its annual NHP for 2010-11 stands at Rs40bn against Rs6bn but laments that WAPDA has capped the annual NHP at Rs6bn against the dictates of QF that had been unanimously endorsed by NFC meeting in February 1988, approved by Council of Common Interests in January 1991 and validated by presidential NFC order No3 of 1991. The NFC had recommended increase of 10 per cent on Rs6 billion for future years.

 

“While Punjab is being paid Rs5bn for around 100MW of electricity produced at Ghazi Barotha power project, KP is given Rs6bn despite the fact that it produces around 4000MW and power tariff  has been increased manifold since then,” he adds.

 

Besides, Rs6bn was determined based on power tariffs of 1987 at the rate of Rs0.33 per unit, in dollar terms in 1991, Rs6bn equalled $200 million but it comes to around $70 million with the current rate of return.

 

The AT had agreed with QF for calculating NHP for 1991-92 but did not apply the QF mechanism for the years onward and rather adhered to a mechanism of compound indexation of 10% per year in NHP using Rs6.9bn as benchmark which was calculated on the basis of QF by WAPDA for 1991- the year prior to restructuring and also when no surcharges and additional surcharges were levied.

 

In the AT, the MMA government had claimed Rs595 billion (Rs292bn principal amount and the rest mark-up) from 1991-2005 but it had abandoned NHP demand from 1973 to 1991 as well as interest on the amount WAPDA owed to KP.

 

Had that period and amount also been included, KP’s outstanding amount against WAPDA would have been much more than at present.

 

It further claimed that according to the QF, the revenues should include all the revenues paid by the consumers, including surcharge and additional surcharges.

 

WAPDA however proposed Rs72bn against Rs83bn already paid, thus claiming Rs10.9bn as overpayment to KP and said that surcharges of Rs829bn and other revenues of Rs195bn could not be used for NHP determination. It also stubbornly rejected as unconstitutional the QF.

 

KP, realising that WAPDA is too weak financially or reluctant to provide the money, has focussed on the federal government being guarantor of the AT award and rightly so.

 

Para 3 and 4 of the Presidential NFC order No3 of 1991 states: The net profits from the bulk generation of power at the hydro-electric stations located in the provinces shall be paid by the concerned undertaking established or administered by the federal government (i.e. WAPDA) to the provinces and that the federal government shall guarantee payment of net profits to the provinces concerned by the above undertaking on a regular basis.

 

Based on the NFC award, AT award was binding on all parties. It had been signed by the then WAPDA chairman Tariq Hamid and secretary finance KP and endorsed by the federal secretary water and power from the federal government. But WAPDA, showing its intransigence, challenged the award in a civil court.

 

Sensing betrayed, KP also went to the Supreme Court against this move where the case is still pending.

 

When the present ANP-led coalition government was installed, it soon formed an all parties Jirga headed by CM Hoti that met PM Gilani in September 2008 and apprised him of their grievances on capped annual NHP and arrears thereof besides mark up, and also complaining that the province was being subjected to worst load-shedding and highest electricity tariff.

 

Gilani promised to solve the problems and formed a committee of experts to present its report within two months on the issues of capped NHP amount, NHP up to 2004-05 and from 2005-06  onwards along with mark up.  Later in October 2009, PM announced payment of Rs110 billion arrears on behalf of WAPDA in five annual instalments to be given on July 1 each year with the promise to release first instalment of Rs10 but it was paid only in December when the provincial NFC team threatened boycott of its proceedings.

 

The technical committee is yet to give its decision. KP finance ministry’s white paper says while participating in the committee, KP shall not accept reopening of issues already decided/settled, that any settlement must conform to the parameters of AT and NFC awards, and that calculation of NHP shall be in accordance with QF.

 

Attempts to contact central leader of Jamaat-e-Islami Sirajul Haq, provincial president of Pakistan Muslim League-Q Amir Muqam Khan and Akram Khan Durrani, former CM KP, didn’t succeed.

 

Aftab Ahmad Khan Sherpao, president of Pakistan Peoples Party (S) said the same coalition at the centre and province should have no problem in increasing annual NHP, giving the province its arrears along with mark up for the entire period. “Our party would support the government in its bid to get NHP arrears and increase the NHP annual amount as a matter of provincial right. But in case they fail to do so, ANP should come out of the federal government,” he said.

 

“Arbitration was unnecessary in the matter. NHP was/is the constitutional right that was accepted by AG N Qazi commission, established in 1987 by CCI and guaranteed by constitutional provisions and no government could have denied NHP to the province. However KP government must stick to the QF and never renege on provincial rights,” he added.

 

“But we would also like to know as to what happened to the Hydel Development Fund and the money provided thus far. The provincial finance commission would also be amended accordingly,” he said.

 

Sub-clause 2 of Article 157 of the constitution clearly empowers the provinces to construct power projects, levy taxes on, and fix tariff, for electricity, construct distribution and transmission lines for distribution of power and the provinces should insist on provincial management rather than the central bodies like WAPDA, Nepra and Pepco etc, but provinces have reneged on their rights.

 

WAPDA has always been reluctant to either increase the annual NHP instalment and has been delaying the payment with one pretext or the other. NHP to the province is due since 1973-74 after the constitutional provisions took effect. But no profits were paid upto 1991-92. For the first time, in March 1978, General Ziaul Haq ordered the disbursement of the profits but with no outcome. Several resolutions by KP assembly have also proved futile.

 

tahir_katlang@yahoo.com

Table 1-details of mark up

Details of outstanding mark up on NHP
   (Rs in Billion)  
· Principal Award Amount (F.Y 1991-92 to 2004-05) 110.101
· Mark-up as per Award of Arbitration Tribunal 10%
· Left over amount from Principal 0.101
· Mark-up (9.10.06 to 30.6.07) 7.993
· F.Y 2007-08 (1.7.07 to 30.6.08) 11.010
· F.Y 2008-09 (1.7.08 to 30.6.09) 11.010
· F.Y 2009-10 (1.7.09 to 16.11.09) 4.159
Sub Total 34.273
· Mark-up on Rs. 100 billion 6.170
(From 17.11.09 to 30.06.2010)  
· Mark-up on Rs. 75 billion 7.500
(From 1.7.2010 to 30.06.2011)  
· Mark-up on Rs. 50 billion 5.000
(From 01.7.2010 to 30.06.2012)  
· Mark-up on Rs. 25billion 2.500
(From 1.7.2012 to 30.06.2013)  
Sub Total 21.170
Total (Future Payable) 55.443

 

Table 2- Details of increased NHP

Year wise details of NHP with mark-up (Post Award period on Compound indexation @ 10% per-annum)
I             FY 2005-06  
           a) Provincial Claim 26.32
           b) Amount Received 6
           c) Balance Amount 20
   d) Mark up @ 10% (1.7.2006 to 30.6.2011) 10.51
          Total 30.45
   
ii          FY 2006-07  
a)  Provincial Claim 28.93
 b)  Amount Received 6
 c)  Balance amount 22.9
 d)  Mark up @ 10% (1.7.2007 to 30.6.2011) 9.7
            Total 32.1
iii         FY 2007-08  
a) Provincial Claim 31.82
b) Amount Received 6
c) Balance amount 25.82
d) Mark up @ 10% (1.7.2008 to 30.6.2011) 7.74
            Total 33.56
Iv           FY 2008-09  
a) Provincial Claim 35
b) Amount Received 6
c) Balance amount 29
d) Mark up @ 10% (1.7.2009 to 30.6.2011) 5.794
Total 34.80
v          FY 2009-10  
a) Provincial Claim 38.50
b) Amount Received 6
c) Balance amount 32.50
d) Mark up @ 10% (1.7.2010 to 30.6.2011) 3.24
Total 35.75
Vi        FY 2010-11  
a) Provincial Claim 42.35
b) Amount Received 6
c) Balance amount 36.35
Total 203.03
Grand Total along with Rs55.44 mark up 258.47

 

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About Tahir Ali Khan
I am an academic, freelance columnist, writer and a social worker.

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