A dissenting member of the National Electric Power Regulatory Authority has questioned the accounting methodology used to approve the National Grid Company (NGC)’s Rs332 billion revenue requirement, arguing that the approach understated the state-owned transmission company’s allowable return.
The disagreement could have implications for future electricity tariffs and regulatory decisions in Pakistan’s power sector.
The dispute centers on how more than Rs19 billion payable to the Central Power Purchasing Agency was treated during the tariff determination. Officials say the accounting treatment affected NGC’s equity base, ultimately reducing the return the company is permitted to earn.
Key Details
In a dissenting note to Nepra’s recent 2-1 decision, Member (Tariff and Finance) Amina Ahmed challenged the majority’s classification of the Rs19 billion payable to CPPA as a loan while calculating NGC’s equity.
The regulator recently approved a combined Rs332 billion revenue requirement for National Grid Company (NGC)—formerly known as the National Transmission and Despatch Company (NTDC)—under the Multi-Year Tariff (MYT) framework for FY2022-23 to FY2024-25.
The approved amount is substantially lower than the Rs478 billion requested by the company.
Key Facts
- Nepra approved Rs81.5 billion for FY2022-23.
- Rs95.6 billion was approved for FY2023-24.
- Rs155 billion was approved for FY2024-25.
- The total approved revenue requirement stands at Rs332 billion.
- NGC had requested Rs478 billion.
The regulator also approved the following Use of System Charges (UoSC):
- Rs382 per kilowatt per month for FY23
- Rs455 per kilowatt per month for FY24
- Rs710 per kilowatt per month for FY25
Why the Dissent Matters
According to Amina Ahmed, the Rs19 billion payable to CPPA stems from the 2015 Business Transfer Agreement, under which NGC transferred market operations assets and liabilities to CPPA.
She argued that the liability has an equal and corresponding receivable linked to assets that were not transferred under the same agreement. In her view, both figures are “mirror images” and should receive identical accounting treatment.
Ahmed maintained that recognizing the liability while excluding the matching receivable artificially lowers NGC’s equity base, reducing the return allowed under the tariff determination.
She also argued that Nepra’s tariff methodology calculates current assets and current liabilities using prescribed formulas rather than actual balance sheet values. Therefore, she said, the payable should not be treated as long-term financing of assets.
According to the dissenting note, either both the liability and receivable should be included in the calculation or both should be excluded to avoid distorting the company’s financial position.
Background
NGC, formerly NTDC, operates Pakistan’s national electricity transmission network and plays a critical role in transporting electricity from power generation plants to distribution companies across the country.
Multi-Year Tariff determinations are designed to provide financial certainty for transmission companies while allowing regulators to balance infrastructure investment with consumer interests.
The latest decision follows broader efforts to reform Pakistan’s power sector, which continues to face challenges including circular debt, transmission constraints, and rising infrastructure investment requirements.
What This Means
Although the majority decision remains in force, the dissent highlights differing views within Nepra on tariff calculation methods.
If similar accounting concerns arise in future tariff reviews or are challenged through legal or regulatory channels, they could influence how transmission companies’ equity bases and allowable returns are calculated.
Industry analysts say transparent and consistent tariff methodologies remain essential for attracting investment into Pakistan’s electricity transmission infrastructure while maintaining fair pricing for consumers.
What’s Next
Nepra’s approved tariff remains effective unless modified through a review or appeal process.
The dissenting opinion, however, is likely to be examined closely by stakeholders in the power sector, particularly as Pakistan continues implementing electricity market reforms and transmission network upgrades.
FAQs
Why did the Nepra member oppose the tariff decision?
She argued that Nepra’s accounting treatment of a Rs19 billion payable to CPPA understated NGC’s equity and reduced its allowable return.
How much revenue did Nepra approve for NGC?
Nepra approved a total revenue requirement of Rs332 billion for FY2022-23 to FY2024-25.
What was NGC’s original request?
The National Grid Company had sought approval for Rs478 billion, but Nepra approved a lower amount.
