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Petitioner: AGAR TEXTILES (PRIVATE) LTD. through Authorised Officer VS Respondent: FEDERATION OF PAKISTAN through Secretary, Ministry of Water and Power, Islamabad and 2 others
Court Name: Sindh High Court Judge(s): Faisal Arab, Muhammad Iqbal Kalhoro Title:AGAR TEXTILES (PRIVATE) LTD. through Authorised Officer vs FEDERATION OF
PAKISTAN through Secretary, Ministry of Water and Power, Islamabad and 2 others Case No.:Constitutional Petitions Nos. D-1434, D-1590, D-3273, D-4257, D-4258, D- 4361, D-4362, D-5082 of 2013 and D-4191 of 2014 Date of Judgment:2015-09-02 Reported As: PLD 2016 Sindh 431 Result: Order accordingly Judgment ORDER ' MUHAMMAD IQBAL KALHORO, J.--In these petitions the common question that calls for determination pertains to the authority of the respondent No,2/National Electric Power Regulatory Authority (for short, NEPRA) to determine tariff in respect of Captive Power Plants (CPPs) and New Captive Power Plants (N-CPPs) commonly known as Small Power Producers (SPPs). To make a point that in petitioners' case the NEPRA has no authority to determine tariff, reference has been made to Power Acquisition Requests submitted by the respondent No,3/Hyderabad Electric Supply Corporation (for short, HESCO) to the NEPRA seeking permission to purchase power; and Power Procumbent Agreements signed by the petitioners and HESCO for purchase of electric power service. On the basis of these documents, the petitioners have impugned 2012 notice (replacing tariff policy of 2007) and determinations (fixing tariff rates) dated 30.05.2013. 2. The facts narrated in all these petitions are somewhat similar to each other except difference in the name and description of the companies or their locations (for instance in C.P. D-No,1434/2013, the distribution company is Faisalabad Electric Supply Company /FESCO and C.P No,D-3273/2013, it is Sukkur Electric Supply Company Ltd/SEPCO ) or where dates of Power Acquisition Requests and Power Procurement Agreements are cited, the same are reproduced herewith briefly in general terms, the object is to maintain necessary context of the issue, which is legal one, for convenience and understanding. The petitioners are different companies incorporated under the laws of Pakistan within the definition of either Captive Power Plants or New Captive Power Plants. Captive
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Power Plant in technical parlance means industrial undertakings or other business concerns carrying out the activity of power production for self-consumption, who intend to sell power, surplus to their requirement, to a Distribution Company or a Bulk Power Consumer. To control the persistent energy crises, the NEPRA in pursuance of sections 32 and 47 of Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (for short, the Act, 1997) made Interim Power Procurement (Procedures and Standards) Regulations, 2005 (for short 2005 Regulations) for carrying out its functions and to prescribe power procurement procedures and the standards for the companies involved in transmission and distribution of power till framing of relevant rules by the Federal Government. As per mechanism provided therein, the transmission and distribution companies could on the basis of Power Acquisition Request get approval from NEPRA for purchasing electricity from generation companies at the most effective price. This was to allow distribution companies to purchase power from small power producers at competitive rates with minimum oversight. To overcome energy crises NEPRA caused a notice published in daily Dawn dated 15.06.2007 whereby allowing Captive Power Plants having surplus power up to 50 Mega Watt generation capacity to sell power to the buyers at mutually agreed rates. Responding to that notice, it is stated, the petitioners approached the Central Power Procurement Agency (hereinafter referred to CPPA) that was responsible for procurement of power on behalf of distribution companies for generation license that was accordingly issued to the petitioners and it is the case of the petitioners that pursuant to the Article 6 of the Generation License and in line with the terms of Power Procurement Agreements they were allowed to charge mutually agreed tariff. Therefore, the petitioners agreed to sell electricity to HESCO on the terms and conditions as set out in the Power Procurement Agreement. In the year 2009 a policy was issued by the Pakistan Electric Power Company (Private) Ltd. (PEPCO) for New Capital Power Producers to further improve scheme for purchasing power from Captive Power Plants and to encourage New Captive Power Plants to sell power from 10 Mega Watt to a maximum of 49 M.W to distribution and transmission companies out of total capacity available at a single location. That policy it is said, envisaged various incentives to the New Captive Power Plants through bilateral agreements. The petitioners after finding the said incentives favorable, invested huge amounts of money in establishing installations for producing the electricity. Contrary to that, NEPRA circulated a notice dated February 1, 2012 whereby it modified the permission granted through the 2007 notice in respect of determination of tariff to the effect that all SPPs/N-CPPs intending to sell electric power to DISCOS/CPPA/BPCs (Bulk Power Consumer) were required to approach NEPRA directly for determination of tariff under Tariff (Standards and Procedures) Rules, 1998 (hereinafter referred to as 1998 Rules) or through distribution companies/CPPA under 2005, Regulations. It is that notice and the subsequent determination of tariff by NEPRA passed on Power Acquisition Requests submitted by the HESCO to purchase power that the petitioners are aggrieved with. The petitioners have stated that such determination of tariff amounts to reneging on the earlier promise made by the NEPRA in the 2007 notice that had allowed the petitioners to charge the tariff as mutually agreed between them and HESCO. It is the claim of the petitioners that such exercise by the NEPRA is illegal, arbitrarily and is interfering in the payment of Fuel Cost Component and it is also against the commitments made to the petitioners who were made to believe that the tariff rates would be determined mutually by them with the distribution companies. Due to such notice the petitioners have come under severe financial constraints and are not able to honour their commitments. It is also the claim of the petitioners that they have invested huge capital in the New Captive Power Plants with a clear understanding and knowledge that the tariff would not be unilaterally determined by the NEPRA, as it was against the terms and conditions of the Power Procurement Agreements. 3. The respondents have filed their Para-wise comments, according to which, under Rule 6 of the National Electric Power Regulatory NEPRA Licensing (Generation) Rules, 2000 (for short, Rules, 2000),
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a licensee can charge only such tariff that is approved by NEPRA. Generation license to the companies was approved by NEPRA through a determination that contains a specific mention that grant of license will be subject to the provision of the Act, 1997 and the Rules framed thereunder, the said determination also provides for that deciding tariff, rate and charges etc. For sale of electricity by the generation companies/New Captive Power Plants shall be responsibility of NEPRA in terms of section 7 (3) of the Act, 1997. As per scheme of Sections 32 and 47 of the Act, 1997, 2005 Regulations are framed whereby the contracts relating to sale of power by generation companies to the distribution and transmission companies have been made subject to the approval by the NEPRA. Under the permission of NEPRA, the transmission or distribution companies are allowed to negotiate with the generation company the terms and conditions of Power Acquisition Contract but before executing such contracts they are required to seek approval from NEPRA in terms of 5(1) of 2005 Regulations. All such contracts are required to have a statement disclosing justification of the rates, terms and conditions proposed to be agreed with the sponsor. After a thorough examination of all related aspects NEPRA grants approval of the Power Procurement Agreement and allows Transmission Company to enter into the sale/purchase contract with the generation companies. Regarding 2007 Notice, it is stated that it was issued whereby the distribution and transmission companies were permitted to purchase idle capacity of captive unit in the country on mutually agreed rates without compromising the consumer-end tariff. In the year 2009, PEPCO framed a Financial Model in the name of NCCP Policy whereby certain advantages and incentives were extended to certain selected companies. Although the distribution companies were allowed to purchase power from the Captive Power Plants on mutually agreed rates but prior approval from NEPRA was mandatory under the law which was not sought by the power purchasers before entering into the Power Procurement Agreements. It has been pointed out, that under the Act, 1997 the rates approved by NEPRA become effective when they are notified in the Official Gazette by the Federal Government. It is claimed that the petitioners do not fall within the definition of Captive Power Plants but are the generation facility established to sell electricity. When electricity is to be sold to an entity, which then sells it to general public, NEPRA gets fully empowered to determine tariff in terms of Sections 7 and 31 of the Act, 1997 r/w 6 of 2000 Rules. Since in the cases in hand the electricity was proposed to be sold to HESCO, it was specifically directed through determination dated 03.01.2011 that notwithstanding proposal of any tariff in any document the tariff, which shall be applicable, would be determined and approved by the NEPRA being sole authority under the Act, 1997. It is also stated that determining tariff by Government or any Government Agency would be inconsistent with the provisions of Sections 7(3) and 12 of the Act, 1997. That was the reason why in the present cases NEPRA did not accept the tariff and directed the distribution companies to file the draft Power Procurement Agreements to be signed with the generation companies, they proposed to purchase electricity from, for approval in terms of 2005 Regulations. Pursuant to such directions, HESCO filed Power Acquisition Request along with the copy of signed Power Procurement Agreements. In terms of Section 7(6) of the Act, 1997 and in accordance with 2005 Regulations NEPRA while approving the draft Power Procurement 'Agreements protected the interests of the end-consumers by rationalizing the generation tariff agreed by the petitioners and HESCO, which was essentially done on the basis of information provided by the petitioners; and as per the benchmarks established by NEPRA relating to gas-based Independent Power Projects (IPPs). Regulation 4(1) of 2005 Regulations stipulates that the power procurement company will have to seek permission from NEPRA before negotiating the Power Procurement Agreement and considering the demand supply gap, the unanimous permission is granted to the distribution companies; however in compliance of regulation 5 of 2005 Regulations the distribution company needs to submit the draft Power Procurement Agreement to NEPRA for approval. While examining the Power Procurement Agreements in the present case, NEPRA noted that reference Fuel Cost
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Component was negotiated without proper working and analysis and no criterion regarding efficiency was adopted in the financial model/policy and the impact of low underline efficiency was not evaluated while agreeing the fuel cost. The most important factor of thermal efficiency was entirely ignored hence in order to assess the actual efficiency of the power plant, technical information including brochures of manufacturers of the equipment were sought from the petitioners and after analyzing every bit of documents, the NEPRA adopted the thermal efficiency of 37.5% in simple cycle mode and 43% in combined cycle mode. As regards to Fix Cost Component the distribution companies were directed to justify the same however, on their failure NEPRA decided to determine the same on the basis of established benchmark applicable in the case of IPPs. Since the gas is precious fuel, hence NEPRA decided to allow the fuel cost component from 1st December 2013 on combined cycle mode to benefit the end-consumer. As the fixed cost component was on higher side resulting in additional burden on the end-consumers, NEPRA in terms of section 7(6) of the Act, 1997 acted not only to strike balance amongst the investor and consumer but to protect the consumer from lower efficiency and higher fixed cost component that was agreed without any basis and documentary evidence and was allowed merely on the basis of the manufacturer's documents submitted by the petitioners as well as their return on equity and financing cost along with interest payment. In the comments of the respondents reference to section 72 of Contract Act, 1872 has also been made to indicate that petitioners cannot take undue advantage of the rates proposed by any other agency except NEPRA, hence transmission and distribution companies are allowed to make payments and adjustments to power generation companies/the petitioners in accordance with the determination dated 30.05.2013. 4. Mr. Omer Soomro, learned counsel for the petitioners argued that the impugned notice and determination were illegal and unlawful as 2007 Notice, whereby the investors were permitted to charge mutually agreed tariff did not contemplate any condition that tariff would be decided subsequently. He next contended that the petitioners had invested millions of rupees in setting up generation facilities to produce and sell surplus power while relying and acting on the 2007 Notice; that it was incentive-oriented and had allowed them to charge tariff that was mutually agreed between them and distribution and transmission companies; that subsequent alteration in tariff by NEPRA was detrimental to the interests of the petitioners; that concession regarding fixation of tariff on mutual basis could not be withdrawn as it would be against the terms and conditions of the Power Procurement Agreements. He then made a reference to the principle of promissory' estoppel and stated that if a person acted on a promise or a commitment made to induce him to so act, the maker of such promise or commitment would be estopped from reneging on his words afterwards. Explaining the same, he argued that the 2007 Notice got published by the NEPRA was modified on 01.02.2012, but prior to that Letter of Intention and Power Procurement Agreements were already signed/executed by the petitioners, with the HESCO whereby tariff rates were mutually agreed, therefore NEPRA was estopped from determining tariff unilaterally with reference to previously signed Power Procurement Agreements. He further argued that 2005 Regulations were introduced by NEPRA as an interim measure, however, through 2007 Notice and 2009 Policy requirement of seeking approval of NEPRA for determination of tariff for Captive Power Plants generating power up to 50 megawatts was waived with a view to alleviate energy crises. He maintained that the 2012 Notice itself acknowledged that NEPRA had given permission to Small Power Producers (SPPs or N- CPPs) to sell power at rates mutually agreed with the distribution companies; that such admission had rendered issuance of impugned determination, that too with retroactive effect illegal and nullity in the law. He however contended even 2012 Notice was not applicable on the petitioners and same was illegal, mala fide and Against the natural norms of justice. He also made reference to the regulation 5(5) of 2005 Regulations to show that impugned determination was in violation of the said regulation as no procedure provided for therein was followed by NEPRA while determining
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the tariff and, according to him, on that sole score it was liable to be quashed. He expressed that 2005 Regulations did not confer any right on NEPRA to hold public hearings in the process of determining tariff, yet it did so to deliberate and determine tariff with the parties in respect of Power Procurement Agreements, although such determination already stood agreed and acted upon in terms of 2007 Notice. He then stated that any decision about fixation of tariff taken in the light of those public hearings was not only illegal but having no force and ultra vires of the applicable law. He in his arguments made references to several provisions of the Act, 1997 to illustrate that the object of the NEPRA was to advance the goal of reducing regulatory control on the contracts entered into by the power producers with the distribution companies. He also stated that tariff- determidation benchmark applied in the case of IPPs could not be employed in the case of he petitioners as they, to no extent were made at par with the IPPs, who were given sovereign and fuel risk guarantees and in this regard he quoted Article 7 of the 2009 Policy. His yet another line of arguments was that NEPRA could not change tariff agreed between the parties when it was not hurting interest of the end-consumer. According to him, while issuing the impugned determination, NEPRA erroneously calculated gas cost component, fixed cost component and insurance rates thereby making the determination entirely invalid and illegal. At the fag-end of his arguments, learned counsel read Article 157 of the Constitution to establish that only the Federal Government had the authority to determine tariff and in presence of such unambiguous mandate in the constitution there was no place for NEPRA to step in and determine the tariff already agreed and acted upon by the parties. He lastly quoted Sections 31, 32, 33 of the Act, 1997 and Regulations 3, 4, 5 of 2005 Regulations in support of his arguments and to build up his case that once, while acting upon 2007 Notice the rates were agreed in Power Procurement Agreements, any change or alteration therein undertaken unilaterally by NEPRA was against the natural norms of justice and the principle of promissory estoppel. Learned counsel relied upon following case laws in support of his arguments. He relied upon the case of Manzoor Hussain and others v. Wall Muhammad and another (PLD 1965 SC 425). 5. Mr. Ajaz Ahmed Zahid, learned counsel for HESCO, on the other hand, contended that under the Act, 1997 and also in terms of 2008 Rules, NEPRA had the authority to determine tariff and that power was without any condition. According to him, any regulations inconsistent with the object and scheme of the Act, 1997 had no force of law. He further stated that the concept of New Captive Power Plants was entirely different than the Captive Power Plants, policy about them was approved by the WAPDA in 2006 and they were the power plants already available with the industry for self- generation but with surplus energy; that they were allowed to sell the additional power in order to overcome energy crises. Against that, he contented, policy about New Captive Power Plants was approved in 2009 by the PEPCO for generation and sale of electricity from the new Power Plants having new machinery hence, in their respect tariff composition was different. While referring to the case of the petitioners relating to 2007 Notice, he argued that it was under Captive Power Plants Policy and was a one-time-arrangement to be done away with in due process of time and that be the position, the petitioners could neither make the said notice a basis for raising the case here nor was it relevant for deciding the subject dispute. Learned counsel further argued that the Letter of Intent (LOI) signed by the petitioners was not in accordance with the terms of 2009 Policy, which though stipulated that HESCO could purchase electricity under Power Procurement Agreement but that was to be done only after approval of power acquisition request was granted by the NEPRA. While questioning the claim of financial loss made by the petitioners owing to impugned determination, he vehemently contended that it was a misstatement, for in terms of the Power Procurement Agreement the HESCO was under obligation to return to the petitioners all the investment made by them in installing the generation plant within first seven years of its operation and thereafter the apparatus/machinery were to become all petitioners' property, as such there
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was no likelihood, in any case, that some financial loss would be incurred by the petitioners. He next emphasized that the petitioners were very much knowledgeable about the fact that NEPRA had statutory obligation to determine the tariff and with that belief that they had approached NEPRA for issuance of generation license and it was also in their knowledge that Power Procurement Agreement would be signed by the HESCO with them only when the permission in respect of power acquisition request was granted by the NEPRA. He also informed that the Power Acquisition Agreement was submitted to the NEPRA on 07.12.2011 (C.P.D. No,4191/2014, different dates in other matters), the approval thereon however was granted on 30th May 2013 and after accepting the terms and conditions of Power Acquisition Request, the petitioners signed the Power Procurement Agreements with the HESCO; thereafter payments were made to the petitioners on invoices showing rates determined by NEPRA. He stated that once such payments were received by the petitioners, they were estopped from filing the petitions challenging the tariff. According to him, after signing the Power Procurement Agreements, the petitioners could not retract from their obligations and conditions on any excuse as the same were signed by them after accepting the expressions enunciated in Power Acquisition Request; that the petitioners at the time of signing the Procurement Agreements could have turned down the terms and condition thereof if they didn't suit them, but after a lapse of sufficient time they could not be allowed to backtrack. He also pointed out to the relevant paras of the agreements showing NEPRA's prerogative to determine the tariff. He relied upon the cases reported in 1998 SCM R 1404, 1992 SCM R 1652 and 2012 SCM R 773. 6. Heard and perused the material placed before us by the counsel during the arguments. The petitioners' main concern as we have noted above is in relation to the authority of NEPRA to determine tariff in the context of the Power Procurement Agreements signed by them with the HESCO for sale of electric power. According to them these agreements in fact form a promissory estoppel having binding effect not only on the HESCO but NEPRA is equally bound by the terms of these agreements as it has granted license for generation of power only after going through the agreements wherein it is clearly provided that the tariff would be mutually agreed between the parties. The petitioners were granted generation license in terms of 2000 Rules, rule 6 thereof is in respect of tariff and has material relevance to the controversy in hand. Its sub-clause (1) reads "Subject to the terms of the pooling and settlement arrangement, the licensee shall charge only such tariff for the provision of electric power or the ancillary services as may be approved or specified by the Authority", under the scheme of said rule NEPRA has to specify the tariff, inter alia, by keeping 1998 Rules. In Part III of these rules, the standards and guidelines are provided and in terms of sub-rule (2) to rule 17 NEPRA is vested with the power to modify, amend or revoke at any time the standards or guidelines by publishing the proposed amendment, modification or revocations in the Official Gazette thirty days earlier than the effective date thereof. There is however one condition that the effectiveness of these modifications would be held back in respect of proceedings pending before NEPRA at the time such modifications or revocations become effective. It indicates an obvious reference to the authority of NEPARA to streamline guidelines and standards to cope up with constantly changing times. The intention appears to make NEPRA dynamic in its approach and responsive to the demanding situations for all times to come so that the very object i.e, regulation of generation, transmission and distribution of electric power and the interest of end-consumer is protected. Therefore, modification in 2007 notice through 2012 notice does not appear to be illegal, in our view NEPRA by changing the policy in respect of tariff only performed its statutory duty in accordance with law. Making modification in guidelines and standards or in rates at any time is the statutory prerogative, the law has vested NEPRA with and that cannot be taken away on any grounds, much less on the expressions made in the Power Procurement Agreements. In Sub-Rule (3) to Rule 17 of 1998. Rules as many as thirteen standards…
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