The management and efficiency of any economic sector derives from transparency and availability of laws for governance in that particular sector. The electricity sector suffers from lack of transparency and availability of clearly defined laws and rules due to which the sector is plagued with inefficiency and corruption. The Constitution of Pakistan (Constitution) includes Electricity in Part II of the Federal Legislative List which means that the formulation of any policy and regulatory oversight over this sector vests with the Council of Common Interests (CCI) under Article 154 of the Constitution wherein all the provinces and the federal government are represented in equal numbers. The federal government cannot formulate or regulate any policy and further that it cannot supervise or control the electricity sector institutions. It has to be the CCI. Notwithstanding, the Economic Co-ordination Committee (ECC) of the Cabinet and the federal government continue to make major policy decisions with respect to the power sector which is violation of the Constitution. Recently, the federal government attempted to transfer the regulatory authorities under the purview of the ministries of the federal government in breach of the express terms of the Constitution, which has been challenged in the courts of law.
As per Article 157 (1) of the Constitution, the federal government has the executive authority to construct power generation plants and lay inter-provincial transmission lines, whereas, as per Article 157 (2) of the Constitution, the government of a province may construct power houses and lay transmission lines for its use and determine tariff for distribution of electricity within the province. Thus, the government of a province is vested with an executive authority to undertake generation, transmission, distribution and regulation functions within a province. However, this executive authority of a province is limited as the provincial assembly does not have the power to enact legislation in relation to the subject of electricity. This anomaly arises due to deletion of electricity from the Concurrent Legislative List without corresponding corrective amendment in the Constitution pursuant to the 18th Constitutional Amendment. The design of the Constitution is such that the executive authority is exercisable by the federal government or the government of a province in relation to the subjects where the parliament or the provincial assembly as the case maybe, has the right to legislate. As a general principle, the provinces have lost the executive authority in matters related to electricity after the 18th Amendment except under Article 157 (2) of the Constitution that too without powers to legislate to put into effect their executive authority. The provinces can set up their electricity institutions for operation within their territorial jurisdictions for generation, transmission, distribution and regulation functions either through the existing legislation or creation of legal entities under the Companies Ordinance 1984. The provinces for now are content with setting up provincial departments of energy and companies to affect their executive powers but have no powers to bring into effect substantive laws, which is the negative outcome of the 18th Amendment which has gone largely unnoticed.
It will be a great surprise to know that the Electricity Act 1910 is still in the field, which is a redundant piece of legislation with passage of over 100 years and because the electricity market has since undergone marked transformation. There is practically no law available to the federal government for exercise of powers in relation to generation, transmission, distribution and regulation functions keeping in view the market trends and global practices. The Nepra Act is restricted to regulatory functions whereas the Water & Power Development Authority (Wapda) Act 1958 was relevant when it was an integrated utility. The powers and functions of Wapda have eroded with the induction of private power projects and devolution of transmission and distribution functions to the public sector, national grid company, generation and distribution companies. The national grid and distribution companies are set up under the Companies Ordinance 1984 and with lack of regulatory oversight specific to the government owned companies these government owned companies have been picking and choosing law to suit their interests. The government owned utility companies fail to appreciate, by design or negligence, that they are public utility companies duly licensed by the regulator and cannot be treated at par with any other private company. Similarly, the private power projects although owned by private sponsors are again concession holders which means that they are setting up and supplying electricity in place of the government and are regulated through concession agreements. Therefore these companies are required to be held accountable to public scrutiny and oversight which again is missing.
The private generation companies have been introduced under different power policies of the federal government starting from 1994, 1995, 1997, 2002, 2006, 2013 and 2015. Similarly, the provinces have formulated their own policies. Both the federal government and provincial power policies ought to have been approved by the CCI which is often not the case. Resultantly, the policies are ambiguous, discriminatory and some time at cross-purposes with each other. There is no law that enables providing concessions, incentives and benefits to the private sector as a result; most of these concessions are based on executive decisions implemented through contractual arrangements. This creates a risk of procedural impropriety, unfairness and irrationality. The federal government has formulated the laws for creation of entities such as Wapda under the Wapda Act 1958, Private Power and Infrastructure Board under the PPIB Act 2012 and Alternative Energy Development Board under the AEDB Act 2010. The PPIB and AEDB are performing their functions under various policies of the federal government which are constitutionally the prerogative of the CCI. The Constitution maintains that it is the CCI which shall regulate and supervise the electricity-related institutions, however, so far there is a lack of such oversight and in default, the federal government has intervened. The most effective manner of supervision and regulation would have been in the shape of participation of the provinces in the board of directors and governors of the electricity entities, which has neither been claimed by the provinces nor admitted by the federal government.
There is a school of thought that the procurement of power from the private sector does not fall within the definition of the public procurement as the equity and debt is financed by the private sector. This view is patently wrong as the sale and purchase of power from the private companies is for and on behalf of public sector distribution companies and the federal government fully secures the obligations through concession agreements and guarantees. The equity and debt incurred by the private sponsors is repaid from the public accounts. Hence, these are public procurements without any exception. Even the Supreme Court of Pakistan in its various judgements has clearly laid down that the procurement in the utility and infrastructure projects has to be through competitive bidding for giving best value of money for consumers; however, this is followed more in breach than observance. The ‘one-window’ mechanism created by the federal government and provincial governments lacks powers to procure power for and on behalf of other entities from private power companies under their statutory enactments and as per the principle of privity of contract under the Contract Act 1872 yet they are in business of purchasing power from the private power companies. Furthermore, they being not the licensees of the regulator, prudency of such purchases cannot be tested.
To eliminate the existing legal conundrum in the power sector, there is a need for enacting a ‘New Electricity Act’ that shall consolidate, formulate and enable all the laws at the federal and provincial levels in the generation, transmission, distribution and regulation segments of the power sector with particular focus on the transparency in the award of the power projects. Unless there is an appreciation and realization of the legal vacuum and a need for ensuring transparency, the legal issues will continue to interrupt and hinder the growth of power sector in a cost-effective and economical manner.
Barrister Asghar Khan, "Power sector: legal conundrum," Business Recorder. 2017-05-07.
Keywords:
Economics
, Power generation plants
, 18th Constitutional amendment
, Private power projects
, Federal government
, Executive authority
, Economic sector
, Territorial jurisdictions
, Electricity sector
, Electricity act
, Nepra Act
, ECC
, CCI
, PPIB
, AEDB
, 1910
