The Khyber Pakhtunkhwa (KP) caretaker government has formally requested that the federal government immediately pay the outstanding Rs 62 billion net hydel profit to the province and increase the profit rate. In a letter addressed to Prime Minister Shehbaz Sharif, Chief Minister Mohammad Azam Khan urged the PM to act on Article 161(2) of the Constitution, which states that the net profit from bulk power generation at a hydro-electric station should be paid to the province where the hydro-electric station is located.
The Constitution provides for the payment of NHP to provinces at a rate determined by the Council of Common Interest (CCI). According to the letter, the Kazi Committee Methodology (KCM) was approved by the CCI in January 1991, and the first payment of Rs6 billion was made to KP (then North Western Frontier Province) the following year. The KCM was endorsed by the National Finance Commission in 1988 and the Supreme Court in 1997. It was subsequently approved by the CCI in 1991, 1993, 1997, 1998, 2016, 2018, and 2019.
In 2016, the federal government realized that KP was in dire straits and, on the instruction of then-Prime Minister Nawaz Sharif, announced an interim NHP agreement brokered by then-Finance Minister Ishaq Dar. The agreement provided for NHP payment of Rs1.10 kwh with a hike in Wapda generation tariff and an effect on consumer tariff of around 30 paisa per unit. The Wapda began payments to Punjab and KP accordingly. However, the payment flow was not regular, resulting in a shortfall of Rs62 billion in 2022-23. It is worth noting that the average national tariff has risen from Rs10 kwh to Rs34 kwh, an increase of 340 percent.
The KP government later took the issue of KCM implementation to the CCI, and then-Prime Minister Nawaz Sharif constituted a committee headed by the deputy chairman of the Planning Commission to deliberate on the determination of rates and net profit in light of the CCI decisions. The committee, in its report submitted to the CCI in December 2019, declared that the KCM had reached finality in view of the numerous unanimous decisions of the CCI spanning over four decades and that it could no longer be reopened. The committee also urged the federal government to ensure direct payments to the provinces to discharge its constitutional responsibility.
The CCI endorsed the calculation of Rs128 billion as KP’s share and Rs52 billion to Punjab as NHP for the year 2016-17 based on the KCM. Another committee was formed to propose an out-of-the-box solution to the NHP payment issue. The out-of-the-box solutions committee deliberated and proposed three important points, including the transfer of hydel power stations to the provinces, construction of hydel generation powers from the federal public services development program, and the announcement of a 2nd interim agreement with an enhanced rate of the NHP.
The CM requested that the PM place the out-of-the-box committee report before the CCI for consideration. “In the meanwhile, a second interim agreement may be announced with an enhanced NHP of Rs2 per kwh and 10 percent increase in Wapda generation tariff with an effect of Rs1 per kwh on consumer and tariff,” he said. Mr. Khan asked the prime minister to ensure an immediate payment of Rs 62 billion NHP arrears to the province directly by the Central Power Purchasing Agency.