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Petitioner: KARACHI ELECTRIC SUPPLY COMPANY LTD. through Authorized Officer/Attorney VS Respondent: LOTTE POWERGEN (PVT.) LIMITED through Company Secretary and 3 others
Court Name: Sindh High Court Judge(s): Munib Akhtar Title:KARACHI ELECTRIC SUPPLY COMPANY LTD. through Authorized
Officer/Attorney vs LOTTE POWERGEN (PVT.) LIMITED through Company Secretary and 3 others Case No.: Suit No.1638 of 2013 Date of Judgment:2014-06-17 Reported As: PLD 2014 Sindh 574 Result: Application allowed Judgment ORDER ' MUNIB AKHTAR, J.---By means of the present application the plaintiff seeks interim injunctive relief against the defendant Nos.1 and 2. The plaintiff ("KESC") holds the distribution licence from the defendant No. 3 ("NEPRA") to distribute and sell electric power in Karachi and certain environs. The defendants Nos. 1 and 2 come within KESC's distribution area. NEPRA has granted a generation licence to the defendant No. 1 to generate electricity at its facility located in the Port Qasim area. The said defendant has also been granted permission to supply the power generated by it to the plant owned and operated by the defendant No. 2. The latter plant is located on the same premises as the defendant No.1 's generation facility. The defendant No. 1 "Lotte Powergen") is in fact the wholly owned subsidiary of the defendant No.2 ("Lotte Chemical"). (I may note that Lotte Chemical was formerly known as Lotte Pakistan PTA Ltd. And previous to that as ICI Pakistan PTA Ltd.) KESC asserts that such permission and supply is contrary to the relevant Provisions of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 ("1997 Act") and rules framed thereunder, and in violation of the rights of exclusivity that vest in KESC by reason of its distribution licence. 2. Learned counsel for KESC, by way of background, submitted that Lotte Chemical was a bulk power consumer within the meaning of section 2(ii) of the 1997 Act. Bulk power consumers were prized customers for any distribution company, since they consumed large amounts of power, thus generating large and (largely) reliable income streams. Learned counsel submitted that power was being regularly supplied to Lotte Chemical and that KESC was committed to continue meeting
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all of the former's needs. Power was being supplied under a power purchase agreement, and the sanctioned load was 32 MW or thereabouts. However, sometime in 2012 Lotte Chemical claimed to have set up what it described as a "captive power plant", which would essentially meet all its electricity needs and thus put the load sanctioned by and available from KESC more or less on standby. Learned counsel submitted that such action was contrary to law and when KESC objected, Lotte Chemical filed a suit in this Court, being Suit 1100/2012 (which is still pending adjudication) in which declaratory and injunctive relief has been sought against KESC by way of requiring it to continue supplying power to the former. It appears that an ad interim order has been made in that suit. 3. Learned counsel submitted that although in the plaint in the earlier suit, Lotte Chemical had sought to create the impression that the "captive power plant" was up and running, this was incorrect. The "captive power plant" was none other than the facility set up by Lotte Powergen, for which the generation licence and permission to sell power to Lotte Chemical was granted only in November, 2013. What had happened was that some months prior to the filing of Suit 1100/2012, on or about 1-6-2012, Lotte Powergen had made an application to NEPRA under the 1997 Act for issuance of a power generation licence. The licence sought was for a 48.1 MW facility and learned counsel submitted that this would meet all the power requirements of Lotte Chemical. NEPRA invited comments from stakeholders, including KESC, and a public hearing also took place. KESC participated in the same and raised essentially the same arguments as were taken before me as to why no such licence and/or authorization, and especially one enabling Lotte Powergen to supply power to Lotte Chemical, could be issued or granted. By means of a determination dated 20-11- 2013 ("Determination") NEPRA overruled all objections. The relevant extract from the Determination has been set out in Annex II hereto. On 26-11-2013, NEPRA issued a generation licence to Lotte Powergen "to engage in generation business subject to and in accordance with the Articles of this Licence". The term of the licence was 24 years. NEPRA also authorized Lotte Powergen to engage in second: tier supply business, which was however limited to the supply of power to one consumer alone, Lotte Chemical. It is in particular this permission and authorization that is challenged by means of the present suit. 4. Before proceeding further, I may note that the relevant provisions of the 1997 Act, the National Electric Power Regulatory Authority (Distribution) Rules, 1999 ("Distribution Rules") and the National Electric Power Regulatory Authority (Generation) Rules, 2000 ("Generation Rules") have been set out in Annex I. 5. Learned counsel for KESC placed reliance on section 21 of the 1997 Act. This section relates to duties and responsibilities of distribution licensees such as KESC. Subsection (2) inter alia provides in its clause (a) (subject to a proviso to be referred to shortly) that the licensee shall have the "exclusive right to provide for such period as may be specified in the licence, distribution service and to make sales of electric power to consumers in the territory specified in the licence". This exclusivity, learned counsel submitted, was the most important aspect of a distribution licence. Learned counsel submitted that the exclusivity provision, and the right of KESC as licensee to sell power to bulk power consumers, was duly reflected in its distribution licence, and reference was made to the relevant articles thereof. Learned counsel referred to the authorization granted to Lotte Powergen to engage in second-tier supply business, which was issued by NEPRA in exercise of powers under section 22 of the 1997 Act read with Rule 7 of the Generation Rules. Learned counsel submitted that section 22 expressly provided that it was only applicable "for a period of fifteen years from the commencement of this Act", i.e., it was subject to what is known as a sunset clause. The 1997 Act came into effect on 13-12-1997 and the 15 year period expired on 13-12-2012. Thus, it was submitted, as on the date of the Determination and the issuance of the authorization, section 22 had ceased to apply. Learned counsel submitted that no permission could therefore possibly
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have been granted in terms thereof. The reference to Rule 7 of the Generation Rules could not change the situation since it was well settled that if there was any inconsistency between the parent statute and subordinate legislation made in terms thereof, the latter had to give way to the extent of the inconsistency. Learned counsel submitted that this objection was expressly taken before NEPRA but the latter overruled it in the Determination in a patently illegal manner. 6. As regards the proviso to section 21(2)(a), learned counsel submitted that that provision was also not available to NEPRA to authorize Lotte Powergen to sell power to Lotte Chemical by way of second-tier supply business. Learned counsel submitted that the proviso was itself, as expressly stated therein, subject to the same sunset clause of 15 years. In this context, learned counsel submitted that the generation licence issued had a term of 24 years, which was in any case clearly unlawful. It was submitted that NEPRA was fully aware of these statutory limitations, which is why in the Determination it made vague references to the "spirit" of the law, which purportedly empowered it to issue the licence and grant the authorization. It was contended that there could be no such power since it would be contrary to express and categorical statutory provisions. Even otherwise, the reasoning and conclusions arrived at in the Determination were patently flawed, misconceived and contrary to law on the fact of it. Learned counsel submitted that KESC had a strong prima facie case and the other ingredients for interim relief also lay in its favour. On this basis, it was contended, no power could at all be supplied to Lotte Chemical by Lotte Powergen and KESC was entitled to interim relief as prayed. 7. Learned counsel for NEPRA, who also filed a written synopsis (as permitted), defended the impugned permission and authorization. Learned counsel submitted that the 1997 Act contemplated three types of licences: a generation licence (section 15), one for transmission (section 16) and a licence for distribution (section 20). Learned counsel referred to the definitions of "distribution" and "generation" given in clauses (v) and (xi) respectively of section 2. It was submitted that Lotte Powergen held a generation licence under section 15 and an authorization to engage in second-tier supply business in terms of section 2(xi) read with Rule 7 of the Generation Rules. Since admittedly its power generation facility was located on the same plot as Lotte Chemical's plant, there was no distribution and hence the terms of KESC's distribution licence were not violated. Referring to sections 21 and 22, learned counsel contended that the proviso to clause (a) of section 21(2) was really in the nature of an explanation. It empowered NEPRA to allow a generation company to sell power to a bulk power consumer for a period of 15 years. Section 22 on the other hand empowered NEPRA to allow a distribution company or a generation company to sell electric power to a bulk power consumer located in the territory of another distribution company. It was accepted that section 22 was subject to the sunset provision noted above. Thereafter, learned counsel submitted, the matter was regulated by the proviso to section 21(2)(a) read with the aforementioned Rule 7. Learned counsel submitted that the rationale for these provisions was to promote healthy competition for supply of power to bulk power consumers. This was achieved by enabling more than one supplier to be available (i.e., the concerned distribution company and any duly authorized generation company). The matter of cross-subsidies was also referred to and relied upon. On the foregoing basis, it was contended that the permission and authorization were valid, proper and fully within the statutory powers of NEPRA. It was submitted that the application for interim relief merited dismissal. One point may be noted here. During the course of his submissions, I pointed out to learned counsel that on his interpretation of section 21(2)(a) read with Rule 7, the term of the generation licence could not be more than 15 years and that would mean, prima facie, that the term of 24 years given in Letter Powergen's licence was contrary to law. Learned counsel candidly conceded that that would appear to be so. 8. Learned counsel for Lotte Powergen and Lotte Chemical (together, the "Lotte defendants") also strongly opposed the grant of any interim relief. Learned counsel submitted that Lotte Chemical
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was a leading manufacturer of PTA, a vital component used in the manufacturing process of a huge range of products. The plant operated by Lotte Chemical needed around 48 MW of power and also high pressure steam. The facility set up by and through Lotte Powergen was a co- generation plant, which produced both electricity and steam. Learned counsel emphasized that any shutdown of the facility or inability to obtain power from it would have serious financial implications for Lotte Chemical. The reason why the power generation facility was set up through a wholly owned subsidiary was to avail certain fiscal incentives that were available and enhanced the viability of the project. Learned counsel referred to section 15 of the 1997 Act, and submitted that the licence granted to Lotte Powergen in terms thereof was to "construct own or operate a generation facility", the latter being a term defined in section 2(xiii). Learned counsel submitted further that the exclusivity granted to a distribution licensee in terms of section 21(2)(a) was in respect of "distribution service" and not sale of electric power. This was the result of the proviso thereto. Thus, as long as a generation company was not engaged in distribution service, it could make sales to a bulk power consumer in terms of the proviso, if so authorized by NEPRA. Since no distribution service was involved the authorization granted to Lotte Powergen was lawful under the 1997 Act and the Generation Rules. Referring to section 22, learned counsel compared the non obstante clause with which the section opened ("notwithstanding anything contained in section 21") with the words "subject to section 22" appearing in the proviso to section 21(2)(a). It was submitted that section 22 was a transitional provision and learned counsel acknowledged that it was no longer applicable at the time of the Determination, and issuance of the generation licence and the authorization. However, there was a difference in the 15 year periods stipulated in the two provisions. In section 22, it expressly related to, and was to be counted from, the commencement of the 1997 Act. In the proviso however, it related only to the period for which authorization could be granted for the second-tier supply business. Thus, learned counsel contended, the term of the generation licence, of 24 years, was perfectly valid, since it related to the generation facility that could be constructed and operated in terms of the licence issued under section 15. The completely separate authorization to engage in second-tier supply business (i.e., supply power to Lotte Chemical) was on the other hand limited to 15 years by reason of the proviso. It was submitted on this that the Determination was legal and the actions taken by NEPRA in consequence thereof were valid and enforceable. No case at all had been made of any alleged illegality or violation of law, or breach of any rights vesting in KESC as a distribution company. It was prayed that the present application be dismissed. Learned counsel also filed a written synopsis (as permitted) and cited certain case-law therein in support of his submissions. 9. I have heard learned counsel as above, examined the record and considered the relevant statutory provisions. I start with section 22. In my view, as submitted by learned counsel for KESC and (quite correctly) not seriously disputed by learned counsel for NEPRA or for the Lotte defendants, this section was, on account of the sunset clause, no longer operative at the time the Determination was made, the generation licence issued and the authorization granted. The sunset clause ensured that with effect from 14-12-2012 no permission could be granted by NEPRA to any generation company or distribution company to sell electric power in terms as provided for in the section. Quite apart from the sunset clause, there is another reason why, in my view, section 22 could not apply. It empowered NEPRA, in subsection (1), to authorize a generation company or a distribution company "to sell electric power to bulk power consumers located in the service territory of another distribution company". The last words, i.e., "service territory of another distribution company" obviously apply relative to the distribution company first referred to in the subsection. In my view, they also apply to the generation company referred to. In other words, section 22 applied to a generation company that operated in the territory of one distribution company and sought permission to sell electric power to bulk power consumers in the territory of another. Quite clearly,
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this is not the situation at hand. Both Lotte Powergen and Lotte Chemical are located in the territory of the same distribution company, KESC. On any view of the matter therefore, section 22 did not, and could not, provide a basis for authorizing Lotte Powergen to sell power to Lotte Chemical by way of second-tier supply business. 10. That does not of course end the matter. It is well settled that reference to the wrong provision does not invalidate the exercise of statutory power if the locus for such power can be found to exist lawfully in some other provision. I do not mean to refer here to Rule 7 of the Generation Rules. For the time being, I confine consideration to the provisions of the 1997 Act and turn therefore to the proviso to section 21(2)(a). This has proved particularly difficult to construe and apply, as is clear from the divergent views expressed thereon by learned counsel. For ease of reference, the provision is again reproduced below: "21. Duties and responsibilities of distribution licensees.--(2) The licensee shall-- (a) possess the exclusive right to provide for such period as may be specified in the licence, distribution service and to make sales of electric power to consumers in the territory specified in the licence and to frame schemes in respect of that territory: ' Provided that a generation company may make sales of electric power to bulk-power consumers within such territory as the Authority may, subject to section 22, for a period of fifteen years, allow;" ' The first point to note is that clause (a) confers exclusivity on the distribution licensee both in respect of distribution service and the right to make sales to consumers in the specified territory (referred to in the Distribution Rules as the "service territory"). I am unable to accept the submission that the exclusivity operates only with respect to the former and does not apply to the latter. It follows from this, secondly, that the proviso is a "true" proviso. It is not an explanation as contended by learned counsel for NEPRA. The interpretation of provisos is well settled. The general rule is that a proviso operates by way of an exception or qualification, carving out of that part of the enactment to which it applies something that, but for the proviso, would fall within the said part. It follows that the proviso in the present case applies only in relation to the sale of electric power to bulk power consumers, that is, it does not and cannot affect the exclusivity conferred on the distribution company either in relation to distribution service or the sale of electric power to consumers other than bulk power consumers. Of course, that is the very situation at hand: Lotte Chemical is admittedly a bulk-power consumer and there is no distribution involved. The question therefore is whether and if so how, and to what extent, does the proviso apply? Before proceeding to consider this question, one point in relation to the proviso may be dealt with first. Learned counsel for the Lotte defendants submitted (in the written synopsis) that the proviso could apply to sales by a generation company to bulk power consumers in the service territory of the distribution company in which the generation company operated, or the service territory of some other distribution company, or both, if and to the extent permitted by NEPRA. With respect, I cannot accept this submission. The proviso is limited only to sales by a generation company to bulk power consumers in the service territory of the distribution company in which it operated. This conclusion clearly follows from the words "such territory" used therein. Had the proviso been a standalone, substantive provision then perhaps there might have been some merit to the submission on account of these words. However, since the words appear in what I regard to be a "true" proviso, they can only relate back to the provision out of which the exception is being carved, and that can only be in relation to the specific distribution licensee in the territory of which the generation company operations. Furthermore, the interpretation urged by learned counsel would efface the distinction between the proviso and section 22(1) to the extent of the generation company and cannot, for that reason also, be accepted. 11. In order to address the question posed in the last paragraph, it will be convenient to start by looking at the proviso as though the words "subject to section 22, for a period of fifteen years" were
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omitted. Would the proviso apply to .The situation at hand if these words were absent? There can hardly be any doubt that the proviso would apply. Lotte Powergen is a generation company within the meaning of section 2(xii). Lotte Chemical is a bulk-power consumer within the meaning of section 2(ii). All that the former wishes to do is to sell power to the latter. Therefore, subject to the terms of the 1997 Act and the rules framed thereunder, NEPRA would have the power to allow such sale. Now the words momentarily taken out may be added to the mix. Quite obviously, these words are intended to have some meaning and effect, and any interpretation that makes them redundant or otiose is to be avoided. In my view, the words, "subject to section 22" on the one hand and "for a period of fifteen years" on the other, apply separately and in their own respective right, and they ought therefore to be so considered. I start with the former, "subject to section 22". Such words ordinarily have a well understood effect. The intent normally is to ensure that whatever is set out in the "subject" provision is subordinated to that which appears in the "master" provision, in the event, and to the extent, of any conflict. If these words were to so apply here, the "subject" provision would be the proviso and the "master" provision would be section 22. However, the difficulty in accepting that this is the effect intended by these words in the context of sections 21 and 22 is that section 22(1) itself opens with a non obstante clause that expressly overrides section 21 in its entirety. Because of the non obstante clause it would be redundant to "subject" the proviso to section 22: it stands subordinated by reason of the former. These words, as used in the proviso, cannot therefore have what has just been explained as their "ordinary" effect. Having considered the matter, in my view, what is intended by the use of the words is to ensure that the proviso is subject to the same conditions that applied in relation to section 22. Thus, the effect of these words is that the exercise of power by NEPRA under the proviso is subject to the same two conditions as applied to exercise of power by it under section 22(1). This is so for two reasons. Firstly, the operation and effect of the proviso and section 22(1) is quite similar. Each is an encroachment on the exclusivity to which a distribution licensee is otherwise entitled. Section 22 applied in relation to the territory of some other distribution company (and affected its exclusivity), whereas the proviso applies in relation to the territory of that very distribution company in which the generation company operates (and likewise affects its exclusivity). Secondly, it is well established that there is no such thing as unfettered statutory discretion. All discretion is structured, whether that structuring is by rules and principles enunciated in the case-law or provided in the statute itself, or both. What section 22(1) did was to statutorily provide structure for the exercise of discretion, in terms of the two conditions laid down in the clauses thereof. The words "subject to section 22" structure the discretion under the proviso in the same manner by making applicable the conditions laid down in subsection (1) thereof. In addition, since the proviso is subject to the whole of the section, the condition contained in subsection (2) would also apply. 12. I turn to consider the remaining words, "for a period of fifteen years". What effect do they have? From the submissions made by learned counsel, two possible solutions emerged. On the one hand, it was contended by learned counsel for KESC that they had the same effect as in section 22(1), i.e., limited the applicability of the proviso to 15 years from the commencement of the 1997 Act. Thus, the words were nothing other than a sunset clause. On the other hand, learned counsel for NEPRA and for the Lotte defendants submitted that they applied to the term or duration of the permission that could be granted by NEPRA; the proviso itself was evergreen, i.e., was not subject to any sunset clause. I have carefully considered the rival submissions. With respect, I prefer the construction urged by learned counsel for KESC. The principal difficulty I have with the other view is that it does not accord with the structure of the 1997 Act. As is clear, inter alia, from sections 15 and 21 as well as the Distribution and Generation Rules, NEPRA has flexibility in setting the terms of a Generation licence and a distribution licence. The 1997 Act itself does not lay down any specific duration. That matter is left to the regulatory authority. Thus, Rule 5. Of the Distribution Rules…
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