THE government’s move to seek lower power tariffs in renewable and LNG-based power plants is laudable but it also reveals significant weaknesses in crucial areas in our power-sector management.

In an unusual move, the ministry of water and power has said that the power regulator, Nepra, has set tariffs for renewable, hydropower and some LNG plants far above their market value, and underlined that it will not be notifying these projects on the basis of the tariffs set by Nepra.

Also read: Govt blocks notification for 10 tariff determinations

Instead, it will move towards international competitive bidding in an effort to bring down the costs. Any step to bring down the cost of power generation is to be welcomed, but this particular case points to significant deficiencies on the part of Nepra to determine upfront tariffs, and do the due diligence necessary to arrive at a fair figure.

As an example, the Quaid-i-Azam Solar Park was inaugurated under an upfront tariff regime at Rs19 per unit, which is almost triple the solar tariffs being offered in other countries. The first project in that park, a Chinese partnership with the government of Punjab, has already locked in this higher tariff.

Moreover, Nepra simply relied on the costs furnished by the Chinese company that was setting up the first plant in QAS for its determination, leading to allegations of favouritism by rival groups.

What doesn’t help in this case is that the earlier higher tariffs have already been locked in by groups in partnership with the government.

In the case of QAS, for instance, the partner was the government of Punjab, and the prime minister himself showed up to inaugurate the park, while the chief minister of the province touted it as a big success of his administration.

Now we have added fuel to charges of favouritism. Why did the government wake up so late to the fact that the tariffs being offered by Nepra were on the higher side? And why did Nepra go ahead and issue such exorbitant tariffs in the first place?

Tariffs for power producers are notoriously hard to adjust once they have been notified and power purchase agreements signed in accordance with them, which makes it all the more important to vet them thoroughly before they are announced.

Apparently, Nepra has not been doing this, with the result that there is a cloud of suspicion and confusion hovering over the government’s plans for the power sector at such a late date.

Published in Dawn, February 16th, 2016