Swindling small investors – the legal way

Pakistan’s ‘rooftop solar community’ is up in arms against the government. The reason behind the outrage is a one-word amendment recently proposed by Nepra in its regulations – to be precise, the Nepra (Alternative & Renewable Energy) Distributed Generation and Net-Metering Regulations, 2015.

The proposed amendment will change the per unit price at which utility companies are supposed to buy excess power produced by rooftop solar power producers. While these excess units were previously supposed to be purchased according to the ‘average power purchase price’, they will now be purchased at the ‘average energy purchase price’. This is much lower – Rs9 as opposed to Rs19 per unit. This means that the rate being offered to rooftop solar producers has been halved in one go. The financial deal between the state authorities and the entire 20,000 strong rooftop solar power community in Pakistan have been reworked through a one-word delegated legislation.

Like many other concerned citizens, my colleagues and I attended the public hearing conducted by Nepra to understand the regulator’s motive behind this proposed move. From what we could gather after the hearing, the motive is something akin to ‘wealth redistribution’.

The Nepra chairman noted with great concern the plight of the ordinary citizen who doesn’t have solar power and is purchasing electricity from the government at exorbitant prices. However, instead of reflecting upon Nepra’s own mistakes in okaying long-term deals with mega-generation companies, all its ire was directed towards the rooftop solar community. It was contended by Nepra that in the wake of sharp rise in electricity prices, the rooftop solar community is benefiting considerably from its timely investment in alternative energy. Nepra intends to, essentially, ‘tax away’ the unforeseen gains of investors in rooftop solar and redistribute the same to the 36 million other electricity consumers who were not able to invest in solar panels.

This logic fails on at least three grounds.

First, the math behind this ‘redistribution of wealth’ argument is quite ridiculous. According to most estimates, rooftop solar generators are selling less than 20MW to the national grid, for a total of Rs9.2 crore per month. This is less than one percent of the country’s power basket. Whether these units are underpriced or overpriced doesn’t actually make a difference to the plight of the ordinary consumer. The plight of the ordinary consumer is the direct result of the tariff being given to the mega-generation companies, the Independent Power Producers (IPPs) which is between Rs25 and Rs34 and is set in dollar terms. We are now paying Rs1,400 billion to these IPPs per year, by way of capacity payments alone.

Rooftop solar generators are such tiny players in the power generation game that they cannot possibly be blamed for anything. Yet, it is astonishing that the regulator has become fixated with squeezing them – simply because they made the prudent decision of investing in alternative energy for their homes and offices at the right time. The witch hunt against rooftop solar is either a thoughtless and terrible waste of regulatory time and effort; or, worse, it could be part of a sinister move to deflect public attention from the real disaster of the government's deals with IPPs.

Second, by comparing the tariff of rooftop solar with mega solar power plants, the regulator seems to have missed the entire point why distributed generation and the net-metering system was introduced in the first place: to avoid line-losses and energy dissipation. Mega-power generation plants, thermal or alternative, are often located hundreds of miles away from the main consumption sites and therefore necessitate the dissipation of power during transmission. Tiny distributed power generators, on the other hand, are located right in the middle of the urban centers where most of the energy is being consumed. While their per unit generation cost might be somewhat higher, transmission and distribution costs are substantially lower. To equate the tariff being granted to rooftop with that being given to IPP is to miss the point entirely.

Finally, and most significantly, whoever proposed this amendment seems to have turned a blind eye to the legal aspect of the situation. Just when the citizen-investor who relied upon Nepra’s policies has started earning profits on their investments, Nepra seems inclined to go back on its word. This is swindling pure and simple. As far as the law goes, these small investors have a legitimate expectation that at least during the currency of their seven-year licences, the price of their produce can be slashed, and their profits cannot be ‘expropriated’ through clever amendments in rules. It goes under the fundamental right to property which is one of the core guarantees in our constitution.

It is one of the most elementary principles of administrative law all over the world that vested rights cannot be taken away from citizens. This cannot be done through change of rules or even through legislative amendments. The Supreme Court has repeatedly held that the executive authority cannot exercise its rule-making power (whether such power is to make, amend, vary or rescind) to take away vested rights of the citizens, and any change which is destructive to rights so vested is without lawful authority and of no legal effect (PLD 1970 SC 439). This is actually the most important question in the present debate.

The plight of the rooftop solar energy community is actually only a part of the larger ‘rule of law’ problem in the country. State authorities seem to have become accustomed to taking policy U-turns, while remaining blithely oblivious to the effects these U-turns have on investors’ rights, especially when it comes to small, disorganized, politically harmless investors.

The inspiring part of the story is that unlike in the past, these small citizen-investors are in no mood to be silently taken for a ride. The tide of rising discontentment was quite visible in the public hearing, one of the most well-attended in Nepra's regulatory history. One hopes authorities will heed the cries of the small citizen-investors and not compel them to go to the courts, the final recourse of the wronged.

The writers are Islamabad-based lawyers.