1. Financial Analysis of Sale/Purchase of Electricity
vis-a-vis
Water Usage Charges/Net Hydel Profit
1
2. 2
Water Use Charges (WUC)
• In line with the decision of CCI KP and Punjab provinces are
being paid NHP @ Rs.1.10/KWh
• Under Mangla Dam Raising Agreement 2003, WUC are being
paid to GoAJ&K @ Rs. 0.15/KWh
• Income of MHP from WUC@ Rs. 0.15/KWh for FY 15-16 is
Rs. 1.076 billion (For FY 16-17 estimated Income is Rs. 1.2 billion)
• Potential Income of MHP from WUC @ Rs 1.10/KWh for
FY 15-16 is Rs. 7.888 billion (7171MKWh)
• Annual loss from MHP to GoAJ&K is Rs 6.812 billion
3. 3
Water Use Charges (WUC)
• Income of NJHEP (5150 MKWh) from WUC @ Rs 0.425/KWh
would be almost Rs. 2.189 billion
• Income of NJHEP from WUC @ Rs. 1.10/KWh would be almost
Rs. 5.665 billion (Rs. 3.476 billion excess)
• Total annual Income from WUC @ 0.15/KWh and 0.425 /KWh
against Mangla HPP and NJHEP is Rs. 3.265 billion
• Total annual Income from WUC @ Rs 1.10/KWh against
Mangla HPP and NJHEP would be almost Rs. 13.553 billion
• Net raising in annual Income from MHP and NJHP is
Rs. 10.288 billion
• On the basis of Arbitration Award 2006 claim of WUC against
Mangla HPP since 1990 would almost be Rs. 356.068 billion
4. 4
Sale of Electricity From Jagran-1 HPP
• Power Purchase Agreement (PPA) of Jagran-1 HPP not being
signed on the pretext of GoAJ&K being defaulter and beneficiary
of low tariff
• Annual loss of approximately Rs. 700 million due to non signing
of PPA
• Due to delay in signing of PPA of 30.4 MW Jagran-I HPP
outstanding amount on account of energy charges since Aug. 2010
is Rs. 3.178 billion
5. 5
Sale & Purchase of Electricity
• According to the clause 5.2 (b) of the Mangle Dam Raising
Agreement , power tariff beyond September, 2003 was fixed by GoP
on the recommendation of Standing Sub-Committee notified by
Ministry of KANA and SAFRON
• Accordingly, power tariff for AJK was decided on the basis of
following guidelines issued in the meeting of Sub-Committee held on
11-09-2003
i. The power tariff for AJ&K from 1st Oct 2003 shall be Rs. 2.59 per
unit. The basis of the decision was that WAPDA charger Rs. 2.58
per unit for domestic consumers upto 100 units. The AJ&K
Government agreed to reduce losses from 37.5% to 27%.
Accordingly, the rate per unit should be Rs. 2.60. The committee
agreed to take the average of these tow rates at Rs. 2.59 per unit
6. 6
Sale & Purchase of Electricity
ii. Since the AJ&K Government don't have provision in their
current year’s budget to pick up additional liability of
Rs. 0.27 per unit, the sub-committee recommended that the
finances required in this regard would be provided by the
Federal Government
iii. The reduction in losses will be reviewed on monthly basis
and any financial gains from reduced losses would be
adjusted to reduce the Government subsidy
• On 08-12-2015 the sub-committee recommended revised tariff
for AJ&K@ Rs. 5.79 per unit
• Losses reported against purchase and sale of electricity for the
last 18 years are almost 39%
• Outstanding liabilities against electricity charges claimed by
WAPDA are almost Rs. 76.463 billion
7. 7
Sr. Description
Amount
(Rs. in billion)
B.E for FY 2015-16 from sale of Electricity 11.000
Position at Purchase Rate of Rs. 2.59/KWh
1. Income from Sale of Electricity during FY 2015-16 8.661
2.
Expenditures by Electricity Department
i. Purchase of Electricity from WAPDA @ Rs. 2.59/KWh = Rs. 4.300 b
ii. Other administrative expenditures = Rs. 1.660 b
5.960**
3. Net income from sale of Electricity (as reported by Finance Department) 2.701
Scenario at the Purchase Rate of Rs. 5.79/KWh
1. Income from sale of Electricity 8.661
2.
Expenditure
i. Purchase of Electricity from WAPDA @ Rs. 5.79/KWh = Rs. 8.963 b
ii. Other administrative expenditures = Rs. 1.660 b
10.623**
3. Net expected loss -1.962
* Power Tariff for consumers of AJ&K is same as for rest of Pakistan
**Excluding Rs. 0.660 billion released to Electricity department from Development budget.
Sale and Purchase of Electricity*
8. 8
Recommendation
• The GoAJ&K may ask the GoP for the same treatment
as is given to provinces/DISCOs in terms of :-
i. Sharing of benefits from Hydel Proceeds
ii. Sale and Purchase of electricity
10. 10
• Article 161 (2) of Constitution of Islamic Republic of Pakistan guarantees the
payment of Net Hydel Profit (NHP) to the relevant Province. Following is the
text:
“The net profits earned by the Federal Government or any undertaking
established or administered by the Federal Government for the bulk generation
of power at a hydro electric station shall be paid to the province in which the
hydro electric station is situated”.
Explanation:
For the purpose of this clause it is further explained in the Article that:
“Net Profit” shall be computed by deducting from the revenues accruing from the
bulk supply of power from the bus-bars of a hydro electric station at a rate to be
determined by the Council of Common Interests (CCI), the operating expenses of
the station which shall include any sums payable as taxes, duties, interest or return
on investment and depreciations and element of obsolescence, and overheads and
provision for reserves”.
Extract of Article 161 of the Constitution
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11. 11
Detail of Power Generation by Mangla Power Station
Units No Commissioning
1 03-07-1967
2 14-07-1967
3 07-03-1968
4 17-06-1969
5 29-12-1973
6 11-03-1974
7 25-05-1981
8 22-07-1981
9 24-09-1993
10 06-07-1994
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12. 12
UNIT
NO DATE UNIT
NO. DATE
1 30.04.1977 8 03.12.1982
2 27.05.1977 9 05.02.1985
3 18.06.1977 10 29.04.1985
4 11.07.1977 11 14.02.1993
5 03.08.1982 12 23.11.1992
6 05.10.1982 13 20.07.1992
7 27.10.1982 14 09.05.1992
Detail of Power Generation by Tarbela Power Station
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13. 13
Chronology of Events
• The matter of calculation of NHP remained unattended un-till 1978. The
issue was then brought in the notice of the Chief Martial Law Administrator,
during his visit of the Peshawar in March 1978 by the GoKP.
• Of late, the matter was brought in the Notice of the National Finance
Commission (NFC) in its meeting held on 22nd November, 1986.
• A Committee was constituted on 24th November, 1986 under the
Chairmanship of Mr. A. G. N. Kazi Deputy Chairman Planning Division
along with Secretary Finance Division, Additional Secretary W&P and
Finance Secretaries KP and Punjab
• The Committee, after series of meeting evolved a methodology and also
calculated NHP for hydro power plants located in KP for the year 1986-87.
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14. 14
Chronology of Events
• Report of the Committee was considered in the NFC meeting held on 14th
February, 1988. As a result of unanimous decision, the same was endorsed in its
entirety to the Council of Common Interests (CCI). The CCI approved the
methodology in its meeting held on 12th January, 1991.
• The President further strengthened the decision of the CCI vide his order of 1991
called “The Distribution of Electricity Profits from Hydro-Electric Station to
provinces, Order 1991.
• An amount of Rs. 6.3 billion was estimated as NHP for financial year 1991-92.
• WAPDA started to pay a capped amount of Rs. 6 billion from financial year 1991-
92 to KP Government.
• On the basis of approved formula, the NHP was required to be increased with the
tariff of electricity. Despite the fact that the tariff of electricity was increased
manifold by WAPDA, the amount of the NHP was remained capped.
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15. 15
Chronology of Events
• The Provincial Government raised the issue of increasing NHP repeatedly
before the Federal Government / WAPDA. Different Committees were
constituted but the issue remained unresolved.
• The issue was once again raised before the 6th NFC wherein it was decided
that the matter may be resolved through arbitration.
• For that purpose, an Arbitral Tribunal was constituted on 31st October 2005.
• The Arbitral Tribunal announced its Award on 9th October 2006, according to
which an amount of Rs. 110 billion was payable to the Government of NWFP
in five installments. First installment (of Rs. 22 billion) was to be paid within
three months of the announcement of the Award along with Rs. 2.7 billion
as mark-up payable for 3 months. Rest of the installments will be payable on
31st December of each Calendar year along with 10% mark-up on the
balance amount.
• A meeting was held on 14th March 2013 under the Chairmanship of Finance
Minister regarding uncapping the rate of the NHP.
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16. 16
Chronology of Events
• It was decided that:
Rate of NHP shall be Rs.1.10 Per KWH to be approved w.e.f next financial
year. This rate shall however index @ 5.5% per annum with a review on
indexation every five years.
• In another meeting Chaired by Minister Water & Power, WAPDA was advised
to incorporate NHP / WUC @ Rs.1.10 /KWh for all hydel power stations
payable to respective Provinces/AJK.
• Accordingly, a petition was filed by the WAPDA for approval of NEPRA for
financial year 2015-16 based upon estimated net electrical output of all hydel
power stations operated by WAPDA.
• The NEPRA did not agree the view point of WAPDA and observed that:
“With regard to equating Water Use Charges (WUC) with Net Hydel Profit,
the Authority is of the opinion that WUC is distinct from NHP and should
not be confused with each other. The WUC is a charge for water usage, and
has its origin in the power policy of 2002. While NHP owes its existence to
the Constitution of 1973”. Next
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17. 17
Chronology of Events
• NEPRA further approved that:
“While taking a projected generation of 17,004 gWh on
account of hydel power stations situated in KPK, NHP @
Rs.1.10/KWh for Fy 2016 works out to be Rs.18,704 million
against Rs.6000 million previously allowed and therefore, the
Authority is including Rs.18,704 million in the Revenue
Requirement of WAPDA as payment obligation of WAPDA in
respect of payment of net hydel profit to the KPK province, as
in interim arrangements”.
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18. 18
MOU between Federal Govt. and GoKP
• An MOU had been signed between the Federal Minister for Water &
Power and Chief Minister KP on this issue with following contents:
• Net Hydel Profit (NHP)
a. the uncapped NHP as determined and transmitted from NEPRA,
would be notified immediately by Ministry of Water & Power;
b. A total amount of Rs.70 billion has been agreed upon on account of
arrears of uncapped NHP after reconciliation of mutual claims in the
power sector between the two Governments as full and final
settlement; and
c. WAPDA, after seeking concurrence of CCI through the Ministry of
Water & Power, would file a tariff petition for recovery of the arrears
in four installments as follows (i) Rs.25 billion in current fiscal year
and (ii) Rs.15 billion each in the next 3 years”.
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19. 19
Approval of CCI
• The CCI gave its concurrence to the MoU signed between Government of
Pakistan and Government of Khyber Pakhtunkhwa on 25th February 2016
specially directing WAPDA to file a Tariff Petition as agreed in the MoU.
• In pursuance of CCI decision, Ministry of Water & Power on 7th March 2016,
notified the decision of NEPRA dated 8th January 2016 wherein NHP for KP
has been uncapped @ Rs.1.10 per kWh on the generation of power plants
located in KP.
• WAPDA filed supplementary tariff petition for the recovery of agreed NHP
arrears as per the directives of CCI in NEPRA on 20th April 2016 and NEPRA
gave its decision on 25th May 2016 allowing the recovery of NHP and arrears
as per the MoU which was notified by Ministry of Water & Power on 24th
June 2016.
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20. 20
Approval of CCI
• CCI has approved payment of payment of Rs 83 billion NHP to
Punjab for Gazi Brotha Hydel power Station in its meeting held
on 16-12-2016 on the same analogy and manner on which
settlement reached earlier this year with the KP Government in
case of Tarbela Dam Hydro Power Station.
• The CCI in its decision # (iii) Case No.CCI.1/1/2016 during the
meeting dated 29th February 2016 referred above also decided
that:
"The Government of Punjab will submit their claim to Ministry of
Water and Power for consideration in the light of said MOU, "(i.e.
MOU with GoKP dated 25-02- 2016)
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21. 21
Claim of Govt. of Punjab
• In the light of above decision, Punjab Govt. submitted to Ministry
of Water and Power, its claim of NHP arrear on the analogy of
settlement between GoP and GoKP. A high level meeting at
Ministry of Water & Power was held on 13thOctober 2016 followed
by another meeting on 7th November 2016 in the Prime Minister
House, Islamabad in which claims of Government of Punjab
regarding NHP were agreed in the Minutes of meeting. It was
decided to present the agreed position to CCI for its approval. For
this purpose Ministry of Water & Power submitted a summary
dated 28thNovember 2016 to CCI for approval and CCI in its
decision on Case No.CCI.7/3/2016 during its meeting held on
16thDecember 2016 (Annex-III) approved the proposal contained
in Para-3 of the summary as below:
a. The claim of Government of Punjab for Rs. 82.71 billion as arrears
of NHP, duly endorsed by WAPDA will be the full and final
settlement of GoP claim as on June, 2016.
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22. 22
Claim of Govt. of Punjab
b. To settle Rs. 38.12 billion, WAPDA would issue irrevocable promissory
note of one year duration to GoP by December 31, 2016. The issuance of
this promissory note will not be contingent upon tariff.
c. The balance Rs.44.59 billion will be paid in three equal installments after
tariff determination by CCl/NEPRA as follows:
Rs 14.86 billion in FY 2017-18
Rs 14.86 billion in FY 2018-19
Rs 14.86 billion in FY 2019-20
d. WAPDA would file a Tariff petition for recovery of the above arrears.
e. Payment of NHP to Government of Punjab @ 1.10 per unit on the analogy
of Government of KPK, generated from Hydel Power Stations located in
Punjab for the FY 2016-17 and onwards.
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23. 23
Detail of Action Taken
• As per the CCI decision, WAPDA on 10th January 2017 has already
issued the Promissory Note in the favor of Government of Punjab
which is backed by GoP guarantee under ECC decision dated 11th
January, 2017.
• NHP payable to Government of Punjab has been included in the
petition file for tariff 2017-2018.
• GoAJK is being paid Net Hydel Profit/Water Use Charges (Royalty)
from Mangla Power Station @ Rs.0.15/KWh under signed agreement
between WAPDA and GoAJ&K.
• The rate of NHP being paid to AJ&K for Mangla Power Station is not
as same as to KP and Punjab.
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24. 24
Demand of GoAJ&K
• During his visit to Muzaffarabad on 29th December 2016, the
Prime Minister Islamic Republic of Pakistan has made
following decision / direction on the issue of payment of Water
Use Charges (WUC) / Net Hydel Profit (NHP) (serial No. 29
of the record note issued by the Secretary to the Prime
Minister) presented by the GoAJ&K:
“PM directed to Finance Minister to review this matter.
• A position Paper was submitted to the office of the Prime
Minister of Pakistan vide letter No. CS/KH/45-50 dated 26-1-
2017.
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26. 26
Details of Arrears for Electricity
(Ending March 2017)
Sr# Region Amount (Rs in million)
1 North 30286.103
2 South 46176.669
Total 76462.772
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27. 27
Year-wise Calculation of NHP (1991-92 TO 2016-17)
Year
Net Hydel Profit
(MRs)*
Amount
Paid
Indexation
(10% P.A)**
Amount
Payable
Balance
Amount
1990-1991 3,595.00 - 0.00 3595.00 3,595.00
1991-1992 3,595.00 - 359.50 3954.50 3,954.50
1992-1993 3,954.50 - 395.45 4349.95 4,349.95
1993-1994 4,349.95 - 435.00 4784.95 4,784.95
1994-1995 4,784.95 - 478.49 5263.44 5,263.44
1995-1996 5,263.44 - 526.34 5789.78 5,789.78
1996-1997 5,789.78 - 578.98 6368.76 6,368.76
1997-1998 6,368.76 - 636.88 7005.64 7,005.64
1998-1999 7,005.64 - 700.56 7706.20 7,706.20
1999-2000 7,706.20 - 770.62 8476.82 8,476.82
2000-2001 8,476.82 - 847.68 9324.50 9,324.50
2001-2002 9,324.50 - 932.45 10256.95 10,256.95
2002-2003 10,256.95 - 1025.70 11282.65 11,282.65
2003-2004 11,282.65 707.99 1128.27 12410.92 11,702.93
2004-2005 12,410.92 601.80 1241.09 13652.01 13,050.21
Rs in million
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* Amount referred in Arbitration Award 2006 with reference to Chairman WAPDA's
letter addressed to Secretary Water & Power dated 22.04.1991
** Indexation allowed in case of KP for calculation of Net Hydel Profit
28. 28
Year-wise Calculation of NHP (1991-92 TO 2016-17)
Year
Net Hydel
Profit (MRs)*
Amount
Paid
Indexation
(10% P.A)**
Amount
Payable
Balance
Amount
2005-2006 13,652.01 796.13 1365.20 15017.21 14,221.08
2006-2007 15,017.21 891.38 1501.72 16518.93 15,627.55
2007-2008 16,518.93 685.27 1651.89 18170.82 17,485.55
2008-2009 18,170.82 352.92 1817.08 19987.90 19,634.98
2009-2010 19,987.90 654.57 1998.79 21986.69 21,332.13
2010-2011 21,986.69 1,279.05 2198.67 24185.36 22,906.32
2011-2012 24,185.36 699.88 2418.54 26603.90 25,904.02
2012-2013 26,603.90 686.48 2660.39 29264.29 28,577.81
2013-2014 29,264.29 858.82 2926.43 32190.72 31,331.90
2014-2015 32,190.72 741.64 3219.07 35409.79 34,668.15
2015-2016 6,591.00 1,075.75 0.00 6591.00 5,515.25
2016-2017 6,591.00 640.36 0.00 6591.00 5,950.64
Total 356,067.66
* Amount referred in Arbitration Award 2006 with reference to Chairman WAPDA's
letter addressed to Secretary Water & Power dated 22.04.1991
** Indexation allowed in case of KP for calculation of Net Hydel Profit
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Rs in million
29. COMPOSITION OF SUB COMMITTEE
DATED 06-JUNE-2003
29
1) Secretary, Water and Power Chairman
2) Chairman, WAPDA Member
3) Chief Secretary, AJ&K Government Member
4) Joint Secretary (PF) Finance Division Member
5) Joint Secretary, KANA & SAFRON Member
TORs:
• Consumption pattern of AJ&K
• Acceptable line losses in AJ&K
• Mangla Dam Agreement of 1967
• Any other relevant point.
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30. 30
30.4 MW Jagran-I HPP
• 30.4 MW Jagran-I HPP was commissioned in 2000 with National Grid at MZD
• Initially PEPCO (WAPDA) made adjustment on mutually agreed tariff to AJ&K
PDO on account of energy dispatched from Jagran-I Power Station through
Electricity Department till July 2010 for Rs. 1.587 billion
• From August 2010 PEPCO (WAPDA) stopped the adjustment of energy
dispatched from Jagran-I power station due to non availability of Power Purchase
Agreement
• This issue was also discussed in the meeting of 08-12-2015 held under the
chairmanship of Secretary Water & Power and it was decided that “Power
Purchase Agreement for Jagran-I HPP will be sign with the CPPA and tariff
approval from NEPRA will be obtained”
• The matter is still pending with Central Power Purchase Agency
• Due to delay in signing of Power Purchase Agreement, outstanding/pending
payment on account of energy dispatched from 30.4 MW Jagran-I hydro power
station from August 2010 to the date is Rs 3.178 billion
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