The writer is a member of staff.

THIS is coming to emergency levels and there is no option now but to shout this out as loudly as possible in the hope that somebody, somewhere, will hear the appeal and find a way to stop this madness. In a nutshell, here is what is happening: the government is laying the groundwork to have you and I, and all other paying consumers of power in this country, foot the bill for the entire circular debt which has surged once again to 2013 levels, approaching half a trillion rupees.

After this, they will use the same mechanism to pass onto us the bill for the massive cost escalations that are about to hit all the power projects that we are so often reminded are being implemented to ‘eliminate load-shedding’. Of course, no such thing will happen, even though the country will be surplus in power generation in a year’s time, but the bills will still need to be paid by us.

How are they doing this? By tweaking a 1998 law to allow the government to add on any surcharges and miscellaneous fees to power bills whenever they want.

Currently the government has the power to add on miscellaneous charges, but still requires the approval of Nepra, the power regulator. The amendments that they are now preparing to railroad through parliament will do away with this formality.

A little known clause was added to the Nepra Act through the finance bill in 2008. That clause, paragraph 5 of Section 31, reads as follows: “Each distribution company shall pay to the federal government such surcharge as the federal government, from time to time, notify in respect of each unit of electric power sold to the consumers and any amount paid under this sub-section shall be considered as a cost incurred by the distribution company to be included in the tariff determined by the authority.”

The full cost of the power sector will be recovered from those who are faithfully paying their bills.

It was under this clause that the earliest of these surcharges was added to the bills of consumers in Punjab. The Neelum Jhelum surcharge, charged at 10 paisa per unit. Nepra approved this surcharge to run till 2015. Then came a string of other surcharges. There was the “financing cost surcharge” at 42 paisa per unit, and a “tariff rationalisation surcharge” at rates that differed depending on consumer category, and a “universal obligation fund surcharge”. The rationalisation surcharge was withdrawn in 2013, the other two were notified in 2014 only to be met with a court challenge

In a 2015 judgement, the Lahore High Court struck them down. That decision was subsequently overturned in the Supreme Court, but the principle of ensuring that surcharges be approved by Nepra, and not be imposed arbitrarily by the government through its relevant ministries, remained intact.

The petitioners argued in that case that “the entire purpose and function of Nepra is defeated when the federal government levies a surcharge and deems it as a cost without any scrutiny from the regulator or under the tariff determination process”, going on to argue that doing so “amounts to regulatory capture”. The government argued that surcharges “represent the cost of the system ie, the cost of transmission, generation and distribution of electric power consumed and includes capital and development costs for future projects to produce electricity” and are necessary to ensure the stability of the system.

Governments have longed chafed at the inconvenience of going through Nepra in order to recover additional dues from consumers. These dues are sought in the name of fancy-sounding principles, such as ‘system stability’, ‘ensuring equity in power pricing’, or ‘arranging future generation capacity’. In truth, it is simply a hunt for resources to pay for system inefficiencies and government ineptitude.

In the fancy jargon of the power sector, they call it ‘full cost recovery’. What this means is that the full cost of the power sector will be recovered from those who are faithfully paying their bills, and dutifully using a legal connection to draw their power. And if the cost of loss and theft, penalties and rents, cannot be passed onto the consumer directly through the tariff, then the roundabout way of doing that is through surcharges and miscellaneous fees. Except that the law, even as stated in the amendment introduced in 2008, still requires the approval of Nepra, an independent and autonomous body that need not bow to government dictates.

Nepra is the only entity standing between power consumers and the thieves and rent seekers who leach off the system. By taking the power to impose surcharges and fees out of its hands and placing it squarely into the hands of the government, the regulator is basically being bypassed and the consumer interest, which is at odds with the private interests of the power generation companies, will now be hostage to the government’s revenue requirements.

When the government came into power, there was a huge circular debt of almost Rs500 billion that had crippled the system and stalled power generation, resulting in massive load-shedding across the country. They extinguished that problem by releasing the entire amount in one go to all power producers. The result was a surge in the fiscal deficit, sending it beyond eight per cent of GDP.

Now as they approach their final year, the circular debt is back to the same level, and before they hand power over to an interim government, they have to ensure that it is brought down to zero again, lest it cripple the power sector during those crucial three months when an interim government will be running things.

But zeroing the circular debt from government money will result in a sharp spike in the fiscal deficit, exposing the fragility of the economic recovery that is such a central part of the government’s story. So then we have plan B, which is to change the law to enable that entire half-a-trillion rupee overhang to be passed onto us, the consumer, through our bills instead.

The writer is a member of staff.

khurram.husain@gmail.com

Twitter: @khurramhusain

Published in Dawn, June 22nd, 2017