The Council of Common Interests (CCI) has reached a consensus on the issue, which has been forwarded to relevant authorities. The Water and Power Development Authority (Wapda) has applied for its tariff to Nepra, containing approved figures and a public hearing has been scheduled to take place in its consideration.

Hydro royalty or net hydel profit (NHP) as it is called in constitutional (1973) terms has been a major dividing and polarizing issue.CCI has reached consensus on Rs1.10 per kWh as NHP, settling many issues of payables and receivables. Wapda has been earlier paying Rs 0.58 per unit as NHP or royalty. Government plans to add 41,000MW through hydropower by 2030. Nepra has issued some questions as the issues to be considered as a matter of standard practice.

The real and internationally recognized term is royalty, which is in the case of resources such as minerals, oil, and gas, etc. The term NHP has created difficulties to define and exactly determine NHP. There could be many interpretations.

One of the interpretations was done by late AGN Kazi, a towering personality of his time in a government bureaucracy. His formula defined NHP as the difference between the average cost of electricity production (average wholesale price) and the production cost of hydroelectricity.

Some people argued that instead of the average cost of generation (COGE), it should have been the next best rate at which the difference should have been calculated as NHP. AGN Kazi formula created some controversy as it yielded a NHP of Rs1.80 per unit at a time the hydro tariff was Rs0.50 or even less.

A tribunal was constituted which gave its ruling in favor of AGN Kazi formula. One of the tribunal members while signing the tribunal decision also said that let us not kill the goose that lays eggs. The goose (Wapda) has since been protesting and asked the government to foot the bill as it did not have the resources to pay such a high royalty/NHP.

K-P people and politicians should feel happy and satisfied. They hold the highest possible award of NHP/royalty if compared with other countries. It is greater than twice than that of India and several times higher than in other countries known for internal fairness and equity policies.

The current CCI decision, although a welcome one, does not lay down a formula. Hydropower is getting expensive each day. AGN Kazi renders hydropower as expensive as any other resource for if there is a difference, it would be charged as NHP. No more slogans of cheap hydropower should have been raised.

Solar and other renewable energy prices are coming down to Rs4-6 per unit. Local gas-based electricity is already available at a COGE of Rs5-6 per unit. Low oil prices have caused a reduction in an average tariff. When furnace oil is eliminated from the energy mix and more economic resources come in, the situation may drastically change. There would be no NHP.

Royalty is generally considered a reward to the people and governments of a region or country for their resources are consumed and the regional and local environment is usually compromised causing land-use changes, pollution and general disturbance, unpredicted changes in life and power structure, etc.

Many royalty provisions, therefore, require distribution of a share to local people and government. In my opinion, hydro royalty should have been spent on people in the social sector and improvements in the areas which have suffered as a result of resource development activities.

When Tarbela was developed, compensation rules were not fair, regardless of the fact that, today more than Rs100 billion has been spent on land purchases and acquisitions.

K-P government has instead opted to develop hydro sources from a Hydro Development Fund that has been created to channel royalty income. K-P has grinding poverty and much-needed social sector assistance is required there. K-P is not bound to generate or provide electricity. It should not divert its much-needed resources to something for which the federal government is responsible.

Hydro royalty, whether termed NHP or water user charge, is expected to be payable irrespective of the ownership being in public or private sector. It is a compensation or user charge whatever term may be adopted.

Currently, IPPs are liable to pay a water user charge which is Rs0.45 per kWh. Up till now, it did not really matter as there was no hydropower project in the private sector.


However, in future, many hydropower projects are expected, a number of those are in the pipeline. It is only fair that the IPPs be required to pay as much as a public sector pays.

Currently, no royalty is paid for Mangla Dam, which is situated in AJK. There are, supposedly, some political or constitutional implications or impediments to applying NHP provisions to AJK. Some Kashmiri nationalists raise it as a negative point against the government of Pakistan. It should be, however, noted that AJK gets payments on many accounts and also there is an almost free electricity regime in AJK.

Punjab governments did not like to charge a royalty. Perhaps, there was a political stigma to it being an unnecessary extraction. No royalty has been paid on Ghazi Barotha.

Therefore, Wapda has included Punjab royalty payments in their tariff application. So now, that Punjab is getting a hydro royalty, AJK should also get it.

However, there may not be a case for small hydro projects of Punjab to get NHP, as its cost of generation is very high and there is no NHP or profit to be charged on the power producer in that case, although it is a small amount.

Concluding, although a consensus has been reached on numbers, it is temporary. There is a need for building a lasting and sustainable solution based on definite definition and methodology on which there should be the consensus.