SUPREME COURT WEIGHS IN ON ELECTRICITY TARIFF HIKE

UNCLAS ISLAMABAD 001525 SIPDIS SENSITIVE BUT UNCLASSIFIED E.O. 12958: N/A TAGS: ENRG ECON EFIN EINV PK SUBJECT: SUPREME COURT WEIGHS IN ON ELECTRICITY TARIFF HIKE ¶1. (SBU) Summary: On July 6, the Supreme Court ordered the National Electric Power Regulatory Authority (NEPRA) to refrain from enacting the proposed 17.5 percent increase in electricity tariffs until such time as the court is satisfied that the increase is truly necessary. Chief Justice Iftikhar Muhammad Chaudhry took "suo moto" notice of the case on June 23 and called in the relevant GOP agencies to explain the need for the tariff increase. According to media accounts and sources at NEPRA, Chaudhry's unhappiness with the GOP's limited response to his request led to the July 6 decision, with the government having until July 23 to respond more fully. Should the GOP try and proceed with the tariff increase before the court is satisfied, the government will be held in contempt. End Summary. ¶2. (SBU) On June 23, the Chief Justice of the Supreme Court, Iftikhar Muhammad Chaudhry, took "suo moto" notice of the GOP's proposed plan to increase power tariffs by 17.5 percent (or Rs 1.96 per unit) July 1. This action effectively blocks temporarily the GOP's ability to move forward on the tariff increase, to which the GOP committed to under its IMF Stand-By Arrangement. Under the Pakistani Constitution, the Supreme Court has the authority to act on its own initiative ("suo moto") to investigate issues of interest. The Court demanded the GOP explain why an across the board increase in the power tariff is necessary at a time when the country is experiencing massive power cuts, and even though international fuel prices are at more manageable levels. (Note: This is not the first time Chaudhry has gotten involved in energy pricing. On May 13, the Supreme Court directed the GOP to lower petroleum prices to pass on cost savings to domestic consumers. As a result, the GOP lowered prices slightly and converted its Petroleum Development Levy into a "carbon tax", with little ultimate relief for consumers. Chaudhry, on July 7, also issued a hold on the carbon tax. Embassy will report on this development septel. End Note). ¶3. (SBU) In response to Court's June 23 request, the Water and Power Development Authority (WAPDA) submitted comments to the effect that the 1973 National Electric Power Regulatory Authority (NEPRA) Act gave the regulator the responsibility to determine tariff rates. Neither WAPDA nor NEPRA reportedly submitted details as to why the rate hike is necessary. ¶4. (SBU) On July 6, Chaudhry convened a three-member bench of the Supreme Court, and lambasted WAPDA Chairman Shakeel Durrani, NEPRA Chairman Khalid Saeed, and Salman Iqbal, Executive Directive, Pakistan Electric Power Company (PEPCO),for failing to respond substantively to his queries. According to media accounts, the officials linked the tariff rise first to low water levels in the hydropower system and then to the high cost of oil. Chaudhry refuted both arguments, noting that hydro power represents only a small proportion of Pakistan's total power supply and that there is a system in place to publicly notify price increases based on higher input costs (in this case, fuel). ¶5. (SBU) The court also demanded an example of an electricity bill in order to understand any additional surcharges being collected by the power companies and demanded further information to ascertain whether the GOP is doing all it can to generate more electricity. The Court directed PEPCO to submit specific information on power generation costs, with a breakdown of the transmission and distribution tariff by July 23. ¶6. (SBU) Chaudhry warned that the Supreme Court will issue an injunction if the GOP attempts to increase power tariffs until such time as the court is satisfied that the increase is truly necessary. Also on July 6, Finance Minister Shaukat Tarin confirmed the government's pledge not to raise tariffs until it can overcome the electricity shortage. ¶7. (SBU) Comment: The Court's action will make it difficult for the government to fulfill its commitment to phase out subsidies and adjust power tariffs. By unconvincingly blaming fuel costs and water shortages, the GOP has missed an opportunity to build a public consensus behind a coherent plan to rationalize electricity costs and deal with the circular debt once and for all. It has also thrown fuel on the populist fire being stoked by the Supreme Court, which could (at least in theory) demand that the government find a way other than increasing power costs to deal with the country's electricity woes. PATTERSON