KP awaits surge in hydel profit under AGN Kazi formula

The government is desperately seeking finances to create fiscal space in its upcoming budget, writes Sohail Khattak

KP awaits surge in hydel profit under AGN Kazi formula
The government of Khyber Pakhtunkhwa, led by Pakistan Tehreek-e-Insaf (PTI), is struggling to get its share in the Net Hydel Profit (NHP) under the AGN Kazi formula from the centre, even though the PTI has its own government there.

Sources in the KP government told The Friday Times that a technical committee, constituted by the Council of Common Interest (CCI) after its meeting on September 24, 2018, is yet to give its recommendations even though it had been tasked to work out the amount payable to KP and the Punjab within a month and submit its recommendations.

“The technical committee established under the chair of the Federal Minister of Planning and Development and Reforms has not submitted its recommendations to the CCI in six months,” said Advisor to KP Chief Minister on Energy and Power Himayatullah Khan.

The government is desperately seeking finances to create fiscal space in its upcoming budget since current expenditures are taking up around 80 percent of the province’s total receipts. There is very little left for development projects.

The province is eyeing the implementation of the AGN Kazi formula, also called the Kazi Committee Methodology (KCM), for the calculation of the net profit from hydel energy generated by the federal government from the hydro-electric dams located there.

“Since the PTI is leading the government in KP, the Punjab and in the centre, it is a golden opportunity for the province to meet this longstanding demand of applying the AGN Kazi formula for calculation of the NHP,” said a senior official of the KP government privy to the matter.

After the PTI government took charge in the centre, the KP government raised the issue in the CCI. According to official documents (copies of which are available with The Friday Times), the technical committee established by the CCI held its first and last meeting on October 26, 2018 in the planning division and constituted a sub-committee under the chairmanship of the federal secretary of power to assist the main committee.

This sub-committee held its first meeting on November 28, 2018 in which the KP government submitted its claim of Rs128 billion, based on the calculations as per the AGN Kazi formula. In the second meeting of the sub-committee held on December 13, 2018, the Punjab government and WAPDA submitted their stances. The Punjab government submitted its claim of Rs52 billion. The sub-committee held its third meeting on February 1, 2019 to finalise the issue and submitted its report to the main committee.

“The prime minister has also directed the technical committee on January 25, 2019 to submit its report in a month on the AGN Kazi formula but no action was taken at the federal level,” Himayatullah Khan said. He said the government needed the money desperately due to the financial crisis it was facing.

Currently, the provincial government is getting around Rs20 billion annually as its share in the NHP from the federal government. It will see a huge increase if it is calculated under the AGN Kazi formula.

As per the documents, the present NHP amount is calculated at the rate of Rs1.10 per kilowatt-hour, an interim rate which the federal government had notified on March 7, 2016 after inking a Memorandum of Understanding (MOU) with the KP government on February 25, 2016.

Before March 2016, KP’s share of NHP was capped at Rs6 billion per annum since the fiscal year 1991-1992. Successive governments in the province were struggling to move forward and start calculations as per the AGN Kazi formula. In PTI’s previous term in KP, the National Electric Power Regulatory Authority (NEPRA) - while deciding a tariff petition in November 2015 filed by WAPDA - decided to uncap the NHP for KP from Rs6 billion per annum to Rs1.10 per kilowatt-hour for total generation in the province.

That decision by NEPRA was implemented by the federal government after it inked the MoU with the KP government and the KP’s share of NHP tripled - Rs6 billion to more than Rs18 billion per annum for the total number of units generated in the province. The federal government also agreed to pay Rs70 billion as the arrears of the uncapped NHP in four instalments, including Rs25 billion in fiscal year 2015-16 and the Rs15 billion for the next three years.

The NHP is payable to the provinces as per the Article 161-2 of the Constitution of Pakistan, which states that the net profit earned by the federal government or any undertaking established or administered by the federal government from the bulk generation of power at a hydro-electric station shall be paid to the province in which the hydro station is situated.

To develop a method for the calculation of the NHP, a committee was constituted on November 24, 1986 under the chairmanship of A.G.N Kazi, then the deputy chairman of the Planning Commission. The federal finance secretary, additional secretary for water and power and KP finance secretary were members of the committee. It submitted its report to the government and it was approved by the CCI in a meeting held on January 12, 1991, for the past and future calculations of the NHP.

Then, the president issued a presidential order in support of the CCI decision, directing the federal government to guarantee payment of the NHP to the provinces.

Based on the AGN Kazi committee formula, the NHP of KP for the year 1991-92 was calculated at Rs0.21 per kilowatt-hour and the total amount became Rs6 billion for that year. As per the formula, the NHP rates are to be increased according to the increase in the tariff of electricity. However, that Rs6 billion was capped and paid to KP annually till March 2016.

Officials in the KP government say they had submitted their claim of Rs128 billion for the fiscal year 2016-17 based on authentic data collected from NEPRA. “If the constitution of this country is to be obeyed, then KP has to be given the NHP and the only way for the calculation is to apply the AGN Kazi formula which has been approved by the CCI many times,” one official said.

The writer is a journalist based in Peshawar