Energy Central-News Article

Pakistan Wind Energy Association is reportedly unhappy with Power Division for delaying notifications of change of base year for Consumer Price Index (CPI) and reimbursement of Withholding Tax (WHT) on dividends of Wind Power Projects (WPPs).

The Association on behalf of its affected WPP members has written to Power Division, saying that through its decision of March 10, 2021 titled 'decision of the Authority in the matter of change of base year 2007-2008 to base year 2015-16 for Consumer Price Index (CPI) for indexation of Fixed and Variable O and M (local) components of generation tariff' the National Electric Power Regulatory Authority (Nepra) had allowed for the local CPI for indexation of local O and M components of the WPPs' generation tariff to be changed from the base year of 2007-2008 to 2015-2016. The Nepra determination provided that such change would take effect from October 01, 2020.

As per its standard practice, the Nepra had intimated the determination to the Federal Government on March 10, 2021, so that it could be notified in the Official Gazette by the Government of Pakistan, pursuant to the provisions of section 31 (7) of the Nepra Act.

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However, the Nepra determination has not been notified in the Official Gazette by the Federal Government. Additionally, the most recent CPI figures for base year 2007-2008 were available in June 2020; from July 2020; however, the Pakistan Bureau of Statistics (the state entity responsible for publication of the CPI), had discontinued such publication and replaced it with CPI for the new base year of 2015-2016.

Accordingly, and since the Nepra determination has not been notified in the Official Gazette, the Authority has refused to index the local O and M tariff component based on the CPI base year of 2015- 2016 and has, instead, been provisionally approving the local O and M indexation at the old base year of 2007-2008 with figures available from June 2020.

WPP argues that a tariff determined by the Authority shall not be deemed effective until it has been published in the Official Gazette, pursuant to the terms of the Nepra Act and as reiterated in the Nepra(Tariff Standards and Procedures Rules), 1998.

As a result, the financial viability of the WPPs has been seriously impacted as the projects are unable to bill the CPPA-G for the actual local O and M amounts owed to them and are also unable to ensure the necessary payments for maintenance and operation of their complexes.

In addition, the Association has also noted that there has been a delay in notifying of certain of the Authority's determinations pertaining to reimbursement of withholding tax (WHT) on dividends for WPP members who are contractually obligated to have their WHT on dividends treated as a pass-through item, reimbursable by the CPPA-G. This has also been provided as a key feature in their tariff determinations.

The Association has claimed that it has been informed by certain of its WPP Members that the delay in WHT notification has resulted in a corresponding delay in reimbursement by the power purchaser.

The timely reimbursement of WHT on dividends is a matter that is vital to ensuring that investor confidence in the power sector is maintained.

The Association has emphasized that the delay in notifications of Nepra determinations is an industry-wide matter, adversely affecting the financial standing of all power projects, whether of renewable or conventional energy, as well as, contributing to the burgeoning circular debt of the power sector.

The Association further emphasizes that the court has already held in 2017 CLC 169 and 2017 CLCN 160 that the Federal Government, under the Act, is 'bound to the tariff determined by NEPRA…, and that the delay by the Federal Government in notifying a tariff determination by Nepra in the Official Gazette…in any case is not expected and applicable.'

WPP, in its letter has requested Secretary Power Division to expedite the notification of Nepra determination in the official gazette and notification pertaining to reimbursement of WHT on dividends, in line with section 31(7) of the Nepra Act.