ISLAMABAD: The federal and Azad Jammu and Kashmir (AJK) governments on Friday signed two memorandums of understanding (MoUs) to pay water use charges to AJK on a par with net hydel profit to provinces and allow it to become party to regulatory hearings in Islamabad relating to hydropower projects in its territory.

Under the first MoU signed by federal water resources secretary and the AJK chief secretary (both federal government officers), the Water and Power Development Authority (Wapda) would pay Rs1.10 per unit water use charges (instead of 15 paise per unit at present) to the state government on power generation from Mangla Dam on the pattern of net hydel profit to Khyber Pakhtunkhwa and Punjab.

This will increase annual payments to AJK to about Rs12bn against less than a billion rupees at present.

The same rate would also be applicable on the Neelum-Jhelum Hydropower Project at a later stage and other upcoming projects in the private sector like Karot, Azad Pattan and Kohala hydropower projects.

The 969MW Neelum-Jhelum project has been supplying electricity to the national grid since 2017, but nothing has so far been paid to AJK.

The new water use charges would not come into force immediately but on a prospective date subsequent to another formal agreement to be signed by AJK and the energy ministry (power division).

In return, the AJK would surrender its right to be charged at a rate of Rs2.59 per unit under a special arrangement arising out of the Mangla Dam agreement and instead would be charged at the average national electricity tariff (about Rs18 per unit at present) like all the distribution companies, or Discos.

For this, AJK would set up its own Disco along the same lines as other 10 Discos of the federal government.

Based on policy guidelines to be issued by the federal cabinet, the Central Power Purchasing Agency (CPPA) would file a separate tariff petition as an agent of the AJK government. Initially, the arrangement would financially benefit AJK but ultimately put it at a loss on account of the Rs18-20 per unit national rate.

Another MoU was signed between the National Electric Power Regulatory Authority (Nepra) and the AJK government under which the regulator would invite the state government as a legitimate party on issues pertaining to environment, community infrastructure programme and corporate social responsibility of the independent power producers as part of their power projects in Azad Kashmir.

At present, Nepra does not have a direct tariff jurisdiction over power projects in Azad Kashmir even though it approves generation tariff for power producers for evacuation to the national grid, followed by national power tariff.

As such, the AJK do not have any say in the regulatory process, even though this impacts its environment, resources and development as the tariff petitions are processed indirectly by the CPPA, the National Transmission and Dispatch Company or Discos.

Under the second MoU, an amount of $55 million collected as part of hydropower projects would be spent on areas affected by such projects in consultation with the AJK government.

The MoU signing events were witnessed by AJK Prime Minister Abdul Qayyum Niazi, relevant federal secretaries and the Nepra chairman. Wapda is expected to sign the MoUs in due course.

In March 2015, the Council of Common Interests approved an increase in water use charges from 15 paise to 42 paise per unit but it remained unimplemented.

Subsequently, the Economic Coordination Committee of the Cabinet had in December 2018 approved increasing special tariff for AJK to Rs5.79 per unit but that too could not be implemented.

As a result, the three Discos are billing AJK at the average national tariff, which has jumped from Rs11 to 18 per unit in three years, but AJK is paying at the rate of Rs2.59 per unit.

Published in Dawn, February 12th, 2022