' MUNIB AKHTAR, J.---By means of the present application the plaintiff seeks interim injunctive relief against the defendant Nos.1 and 2. The plaintiff ("KESC") holds the distribution licence from the defendant No. 3 ("NEPRA") to distribute and sell electric power in Karachi and certain environs. The defendants Nos. 1 and 2 come within KESC's distribution area. NEPRA has granted a generation licence to the defendant No. 1 to generate electricity at its facility located in the Port Qasim area.
The said defendant has also been granted permission to supply the power generated by it to the plant owned and operated by the defendant No.
2. The latter plant is located on the same premises as the defendant No.1 's generation facility. The defendant No. 1 "Lotte Powergen") is in fact the wholly owned subsidiary of the defendant No.2 ("Lotte Chemical"). (I may note that Lotte Chemical was formerly known as Lotte Pakistan PTA Ltd.
And previous to that as ICI Pakistan PTA Ltd.) KESC asserts that such permission and supply is contrary to the relevant Provisions of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 ("1997 Act") and rules framed thereunder, and in violation of the rights of exclusivity that vest in KESC by reason of its distribution licence.
2. Learned counsel for KESC, by way of background, submitted that Lotte Chemical was a bulk power consumer within the meaning of section 2(ii) of the 1997 Act. Bulk power consumers were prized customers for any distribution company, since they consumed large amounts of power, thus generating large and (largely) reliable income streams. Learned counsel submitted that power was being regularly supplied to Lotte Chemical and that KESC was committed to continue meeting all of the former's needs. Power was being supplied under a power purchase agreement, and the sanctioned load was 32 MW or thereabouts. However, sometime in 2012 Lotte Chemical claimed to have set up what it described as a "captive power plant", which would essentially meet all its electricity needs and thus put the load sanctioned by and available from KESC more or less on standby. Learned counsel submitted that such action was contrary to law and when KESC objected, Lotte Chemical filed a suit in this Court, being Suit 1100/2012 (which is still pending adjudication) in which declaratory and injunctive relief has been sought against KESC by way of requiring it to continue supplying power to the former. It appears that an ad interim order has been made in that suit.
3. Learned counsel submitted that although in the plaint in the earlier suit, Lotte Chemical had sought to create the impression that the "captive power plant" was up and running, this was incorrect. The "captive power plant" was none other than the facility set up by Lotte Powergen, for which the generation licence and permission to sell power to Lotte Chemical was granted only in November, 2013. What had happened was that some months prior to the filing of Suit 1100/2012, on or about 1-6-2012, Lotte Powergen had made an application to NEPRA under the 1997 Act for issuance of a power generation licence. The licence sought was for a 48.1 MW facility and learned counsel submitted that this would meet all the power requirements of Lotte Chemical. NEPRA invited comments from stakeholders, including KESC, and a public hearing also took place. KESC participated in the same and raised essentially the same arguments as were taken before me as to why no such licence and/or authorization, and especially one enabling Lotte Powergen to supply power to Lotte Chemical, could be issued or granted. By means of a determination dated 20-11- 2013 ("Determination") NEPRA overruled all objections. The relevant extract from the Determination has been set out in Annex II hereto. On 26-11-2013, NEPRA issued a generation licence to Lotte Powergen "to engage in generation business subject to and in accordance with the Articles of this Licence". The term of the licence was 24 years. NEPRA also authorized Lotte Powergen to engage in second: tier supply business, which was however limited to the supply of power to one consumer alone, Lotte Chemical. It is in particular this permission and authorization that is challenged by means of the present suit.
4. Before proceeding further, I may note that the relevant provisions of the 1997 Act, the National Electric Power Regulatory Authority (Distribution) Rules, 1999 ("Distribution Rules") and the National Electric Power Regulatory Authority (Generation) Rules, 2000 ("Generation Rules") have been set out in Annex I.
5. Learned counsel for KESC placed reliance on section 21 of the 1997 Act. This section relates to duties and responsibilities of distribution licensees such as KESC. Subsection (2) inter alia provides in its clause (a) (subject to a proviso to be referred to shortly) that the licensee shall have the "exclusive right to provide for such period as may be specified in the licence, distribution service and to make sales of electric power to consumers in the territory specified in the licence". This exclusivity, learned counsel submitted, was the most important aspect of a distribution licence.
Learned counsel submitted that the exclusivity provision, and the right of KESC as licensee to sell power to bulk power consumers, was duly reflected in its distribution licence, and reference was made to the relevant articles thereof. Learned counsel referred to the authorization granted to Lotte Powergen to engage in second-tier supply business, which was issued by NEPRA in exercise of powers under section 22 of the 1997 Act read with Rule 7 of the Generation Rules. Learned counsel submitted that section 22 expressly provided that it was only applicable "for a period of fifteen years from the commencement of this Act", i.e., it was subject to what is known as a sunset clause.
The 1997 Act came into effect on 13-12-1997 and the 15 year period expired on 13-12-2012. Thus, it was submitted, as on the date of the Determination and the issuance of the authorization, section 22 had ceased to apply. Learned counsel submitted that no permission could therefore possibly have been granted in terms thereof. The reference to Rule 7 of the Generation Rules could not change the situation since it was well settled that if there was any inconsistency between the parent statute and subordinate legislation made in terms thereof, the latter had to give way to the extent of the inconsistency. Learned counsel submitted that this objection was expressly taken before NEPRA but the latter overruled it in the Determination in a patently illegal manner.
6. As regards the proviso to section 21(2)(a), learned counsel submitted that that provision was also not available to NEPRA to authorize Lotte Powergen to sell power to Lotte Chemical by way of second-tier supply business. Learned counsel submitted that the proviso was itself, as expressly stated therein, subject to the same sunset clause of 15 years. In this context, learned counsel submitted that the generation licence issued had a term of 24 years, which was in any case clearly unlawful. It was submitted that NEPRA was fully aware of these statutory limitations, which is why in the Determination it made vague references to the "spirit" of the law, which purportedly empowered it to issue the licence and grant the authorization. It was contended that there could be no such power since it would be contrary to express and categorical statutory provisions. Even otherwise, the reasoning and conclusions arrived at in the Determination were patently flawed, misconceived and contrary to law on the fact of it. Learned counsel submitted that KESC had a strong prima facie case and the other ingredients for interim relief also lay in its favour. On this basis, it was contended, no power could at all be supplied to Lotte Chemical by Lotte Powergen and KESC was entitled to interim relief as prayed.
7. Learned counsel for NEPRA, who also filed a written synopsis (as permitted), defended the impugned permission and authorization. Learned counsel submitted that the 1997 Act contemplated three types of licences: a generation licence (section 15), one for transmission (section 16) and a licence for distribution (section 20). Learned counsel referred to the definitions of "distribution" and "generation" given in clauses (v) and (xi) respectively of section 2. It was submitted that Lotte Powergen held a generation licence under section 15 and an authorization to engage in second-tier supply business in terms of section 2(xi) read with Rule 7 of the Generation Rules. Since admittedly its power generation facility was located on the same plot as Lotte Chemical's plant, there was no distribution and hence the terms of KESC's distribution licence were not violated. Referring to sections 21 and 22, learned counsel contended that the proviso to clause
(a) of section 21(2) was really in the nature of an explanation. It empowered NEPRA to allow a generation company to sell power to a bulk power consumer for a period of 15 years. Section 22 on the other hand empowered NEPRA to allow a distribution company or a generation company to sell electric power to a bulk power consumer located in the territory of another distribution company. It was accepted that section 22 was subject to the sunset provision noted above. Thereafter, learned counsel submitted, the matter was regulated by the proviso to section 21(2)(a) read with the aforementioned Rule 7. Learned counsel submitted that the rationale for these provisions was to promote healthy competition for supply of power to bulk power consumers. This was achieved by enabling more than one supplier to be available (i.e., the concerned distribution company and any duly authorized generation company). The matter of cross-subsidies was also referred to and relied upon. On the foregoing basis, it was contended that the permission and authorization were valid, proper and fully within the statutory powers of NEPRA. It was submitted that the application for interim relief merited dismissal. One point may be noted here. During the course of his submissions, I pointed out to learned counsel that on his interpretation of section 21(2)(a) read with Rule 7, the term of the generation licence could not be more than 15 years and that would mean, prima facie, that the term of 24 years given in Letter Powergen's licence was contrary to law.
Learned counsel candidly conceded that that would appear to be so.
8. Learned counsel for Lotte Powergen and Lotte Chemical (together, the "Lotte defendants") also strongly opposed the grant of any interim relief. Learned counsel submitted that Lotte Chemical was a leading manufacturer of PTA, a vital component used in the manufacturing process of a huge range of products. The plant operated by Lotte Chemical needed around 48 MW of power and also high pressure steam. The facility set up by and through Lotte Powergen was a co- generation plant, which produced both electricity and steam. Learned counsel emphasized that any shutdown of the facility or inability to obtain power from it would have serious financial implications for Lotte Chemical. The reason why the power generation facility was set up through a wholly owned subsidiary was to avail certain fiscal incentives that were available and enhanced the viability of the project. Learned counsel referred to section 15 of the 1997 Act, and submitted that the licence granted to Lotte Powergen in terms thereof was to "construct own or operate a generation facility", the latter being a term defined in section 2(xiii). Learned counsel submitted further that the exclusivity granted to a distribution licensee in terms of section 21(2)(a) was in respect of "distribution service" and not sale of electric power. This was the result of the proviso thereto. Thus, as long as a generation company was not engaged in distribution service, it could make sales to a bulk power consumer in terms of the proviso, if so authorized by NEPRA. Since no distribution service was involved the authorization granted to Lotte Powergen was lawful under the 1997 Act and the Generation Rules. Referring to section 22, learned counsel compared the non obstante clause with which the section opened ("notwithstanding anything contained in section 21") with the words "subject to section 22" appearing in the proviso to section 21(2)(a). It was submitted that section 22 was a transitional provision and learned counsel acknowledged that it was no longer applicable at the time of the Determination, and issuance of the generation licence and the authorization. However, there was a difference in the 15 year periods stipulated in the two provisions. In section 22, it expressly related to, and was to be counted from, the commencement of the 1997 Act. In the proviso however, it related only to the period for which authorization could be granted for the second-tier supply business. Thus, learned counsel contended, the term of the generation licence, of 24 years, was perfectly valid, since it related to the generation facility that could be constructed and operated in terms of the licence issued under section 15. The completely separate authorization to engage in second-tier supply business (i.e., supply power to Lotte Chemical) was on the other hand limited to 15 years by reason of the proviso. It was submitted on this that the Determination was legal and the actions taken by NEPRA in consequence thereof were valid and enforceable. No case at all had been made of any alleged illegality or violation of law, or breach of any rights vesting in KESC as a distribution company. It was prayed that the present application be dismissed. Learned counsel also filed a written synopsis (as permitted) and cited certain case-law therein in support of his submissions.
9. I have heard learned counsel as above, examined the record and considered the relevant statutory provisions. I start with section 22. In my view, as submitted by learned counsel for KESC and (quite correctly) not seriously disputed by learned counsel for NEPRA or for the Lotte defendants, this section was, on account of the sunset clause, no longer operative at the time the Determination was made, the generation licence issued and the authorization granted. The sunset clause ensured that with effect from 14-12-2012 no permission could be granted by NEPRA to any generation company or distribution company to sell electric power in terms as provided for in the section. Quite apart from the sunset clause, there is another reason why, in my view, section 22 could not apply. It empowered NEPRA, in subsection (1), to authorize a generation company or a distribution company "to sell electric power to bulk power consumers located in the service territory of another distribution company". The last words, i.e., "service territory of another distribution company" obviously apply relative to the distribution company first referred to in the subsection. In my view, they also apply to the generation company referred to. In other words, section 22 applied to a generation company that operated in the territory of one distribution company and sought permission to sell electric power to bulk power consumers in the territory of another. Quite clearly, this is not the situation at hand. Both Lotte Powergen and Lotte Chemical are located in the territory of the same distribution company, KESC. On any view of the matter therefore, section 22 did not, and could not, provide a basis for authorizing Lotte Powergen to sell power to Lotte Chemical by way of second-tier supply business.
10. That does not of course end the matter. It is well settled that reference to the wrong provision does not invalidate the exercise of statutory power if the locus for such power can be found to exist lawfully in some other provision. I do not mean to refer here to Rule 7 of the Generation Rules. For the time being, I confine consideration to the provisions of the 1997 Act and turn therefore to the proviso to section 21(2)(a). This has proved particularly difficult to construe and apply, as is clear from the divergent views expressed thereon by learned counsel. For ease of reference, the provision is again reproduced below: "21. Duties and responsibilities of distribution licensees.--(2) The licensee shall--
(a) possess the exclusive right to provide for such period as may be specified in the licence, distribution service and to make sales of electric power to consumers in the territory specified in the licence and to frame schemes in respect of that territory: ' Provided that a generation company may make sales of electric power to bulk-power consumers within such territory as the Authority may, subject to section 22, for a period of fifteen years, allow;"
' The first point to note is that clause (a) confers exclusivity on the distribution licensee both in respect of distribution service and the right to make sales to consumers in the specified territory (referred to in the Distribution Rules as the "service territory"). I am unable to accept the submission that the exclusivity operates only with respect to the former and does not apply to the latter. It follows from this, secondly, that the proviso is a "true" proviso. It is not an explanation as contended by learned counsel for NEPRA. The interpretation of provisos is well settled. The general rule is that a proviso operates by way of an exception or qualification, carving out of that part of the enactment to which it applies something that, but for the proviso, would fall within the said part. It follows that the proviso in the present case applies only in relation to the sale of electric power to bulk power consumers, that is, it does not and cannot affect the exclusivity conferred on the distribution company either in relation to distribution service or the sale of electric power to consumers other than bulk power consumers. Of course, that is the very situation at hand: Lotte Chemical is admittedly a bulk-power consumer and there is no distribution involved. The question therefore is whether and if so how, and to what extent, does the proviso apply? Before proceeding to consider this question, one point in relation to the proviso may be dealt with first. Learned counsel for the Lotte defendants submitted (in the written synopsis) that the proviso could apply to sales by a generation company to bulk power consumers in the service territory of the distribution company in which the generation company operated, or the service territory of some other distribution company, or both, if and to the extent permitted by NEPRA. With respect, I cannot accept this submission. The proviso is limited only to sales by a generation company to bulk power consumers in the service territory of the distribution company in which it operated. This conclusion clearly follows from the words "such territory" used therein. Had the proviso been a standalone, substantive provision then perhaps there might have been some merit to the submission on account of these words. However, since the words appear in what I regard to be a "true" proviso, they can only relate back to the provision out of which the exception is being carved, and that can only be in relation to the specific distribution licensee in the territory of which the generation company operations.
Furthermore, the interpretation urged by learned counsel would efface the distinction between the proviso and section 22(1) to the extent of the generation company and cannot, for that reason also, be accepted.
11. In order to address the question posed in the last paragraph, it will be convenient to start by looking at the proviso as though the words "subject to section 22, for a period of fifteen years" were omitted. Would the proviso apply to .The situation at hand if these words were absent? There can hardly be any doubt that the proviso would apply. Lotte Powergen is a generation company within the meaning of section 2(xii). Lotte Chemical is a bulk-power consumer within the meaning of section 2(ii). All that the former wishes to do is to sell power to the latter. Therefore, subject to the terms of the 1997 Act and the rules framed thereunder, NEPRA would have the power to allow such sale. Now the words momentarily taken out may be added to the mix. Quite obviously, these words are intended to have some meaning and effect, and any interpretation that makes them redundant or otiose is to be avoided. In my view, the words, "subject to section 22" on the one hand and "for a period of fifteen years" on the other, apply separately and in their own respective right, and they ought therefore to be so considered. I start with the former, "subject to section 22". Such words ordinarily have a well understood effect. The intent normally is to ensure that whatever is set out in the "subject" provision is subordinated to that which appears in the "master" provision, in the event, and to the extent, of any conflict. If these words were to so apply here, the "subject" provision would be the proviso and the "master" provision would be section 22. However, the difficulty in accepting that this is the effect intended by these words in the context of sections 21 and 22 is that section 22(1) itself opens with a non obstante clause that expressly overrides section 21 in its entirety. Because of the non obstante clause it would be redundant to "subject" the proviso to section 22: it stands subordinated by reason of the former. These words, as used in the proviso, cannot therefore have what has just been explained as their "ordinary" effect. Having considered the matter, in my view, what is intended by the use of the words is to ensure that the proviso is subject to the same conditions that applied in relation to section 22. Thus, the effect of these words is that the exercise of power by NEPRA under the proviso is subject to the same two conditions as applied to exercise of power by it under section 22(1). This is so for two reasons. Firstly, the operation and effect of the proviso and section 22(1) is quite similar. Each is an encroachment on the exclusivity to which a distribution licensee is otherwise entitled. Section 22 applied in relation to the territory of some other distribution company (and affected its exclusivity), whereas the proviso applies in relation to the territory of that very distribution company in which the generation company operates (and likewise affects its exclusivity). Secondly, it is well established that there is no such thing as unfettered statutory discretion. All discretion is structured, whether that structuring is by rules and principles enunciated in the case-law or provided in the statute itself, or both. What section 22(1) did was to statutorily provide structure for the exercise of discretion, in terms of the two conditions laid down in the clauses thereof. The words "subject to section 22" structure the discretion under the proviso in the same manner by making applicable the conditions laid down in subsection (1) thereof. In addition, since the proviso is subject to the whole of the section, the condition contained in subsection (2) would also apply.
12. I turn to consider the remaining words, "for a period of fifteen years". What effect do they have?
From the submissions made by learned counsel, two possible solutions emerged. On the one hand, it was contended by learned counsel for KESC that they had the same effect as in section 22(1), i.e., limited the applicability of the proviso to 15 years from the commencement of the 1997 Act. Thus, the words were nothing other than a sunset clause. On the other hand, learned counsel for NEPRA and for the Lotte defendants submitted that they applied to the term or duration of the permission that could be granted by NEPRA; the proviso itself was evergreen, i.e., was not subject to any sunset clause. I have carefully considered the rival submissions. With respect, I prefer the construction urged by learned counsel for KESC. The principal difficulty I have with the other view is that it does not accord with the structure of the 1997 Act. As is clear, inter alia, from sections 15 and 21 as well as the Distribution and Generation Rules, NEPRA has flexibility in setting the terms of a Generation licence and a distribution licence. The 1997 Act itself does not lay down any specific duration. That matter is left to the regulatory authority. Thus, Rule 5. Of the Distribution Rules provides that the term shall not be less than 20 years, unless the licensee agrees to a shorter term. Rule 5 of the Generation rules provides that unless the licensee agrees to a shorter term, the term is to be "commensurate with the maximum expected useful life of the units comprised in a generation facility demonstrated to the satisfaction of the Authority". The authorization in terms of the proviso on the other hand (on the construction urged by learned counsel for NEPRA and the Lotte defendants) would be absolutely rigid: 15 years exactly, no more and no less. This does not accord with the 1997 Act. In my view, what the statute envisages is that NEPRA should be able to tailor the term of any licence, permission or authorization under the statute or the rules to suit the specific purposes for which it is to be issued, made or granted. Of course, as just noted, such power or discretion is not unfettered and must be exercised in a structured manner, in accordance with law.
But in my view, flexibility is part of the structure of the statutory framework. The interpretation urged by learned counsel for NEPRA and for the Letter defendants has the opposite effect. It introduces an absolute rigidity, making the permission granted under the proviso an "all or nothing" affair: the term is either 15 years or zero. Indeed, one consequence of such absolute rigidity would be that no permission could be granted at all if the term remaining for the licence of the concerned distribution company is less than 15 years. This would be so because the proviso simply carves out an exception from the exclusivity to which the distribution licensee is otherwise entitled. In terms of the interpretation now being considered, it could not therefore possibly make sense (and in my view would be unlawful) to grant permission to the generation company for a term greater than the remaining portion of the distribution licence. Since the term of the permission has to be exactly 15 years, this would mean that on the date it is granted the period remaining for the distribution licence would have to be 15 years or more. Now, the term of KESC's distribution licence is 20 years, starting from 21-7-2003 and ending on 20-7-2023. As on 26-11-2013 that term had less than 15 years to go (with 9 years 7 months and 25 days remaining, to be exact). It would therefore seem that even on the interpretation sought to be put on the proviso by learned counsel for NEPRA and for the Lotte defendants, no permission could have been granted to Lotte Powergen in terms thereof.
However, be that as it may, in my view the better interpretation is to regard the 15 year period as a sunset clause. On that basis, it ceased to apply on the same date as section 22 became inapplicable. Hence NEPRA had no power in terms thereof to grant any authorization or permission to Lotte Powergen to sell power to Lotte Chemical.
13. I turn to consider Rule 7 of the Generation Rules, which is the second provision under which NEPRA has authorized Lotte Powergen to undertake second-tier supply business. This requires consideration of what is meant by "second-tier supply business". Before proceeding further, one point must be made. As noted above, the 1997 Act came into effect on 13-12-1997. The Distribution Rules took effect from 15-4-1999 and the Generation Rules from 17-4-2000. Thus, when these rules came into force, the 15 year periods stipulated in section 22 and the proviso to section 21(2)(a) had a number of years to run (being around 13 years 7 months for the Distribution Rules and 12 years 7 months for the Generation Rules). Both sets of rules therefore, quite properly, took into consideration the effect of these statutory provisions, and were framed accordingly. However, once the 15 year period elapsed, then certain provisions as were earlier applicable either ceased to apply or are now required to be construed and applied rather differently. This point must be kept in mind at all times.
14. As regards the meaning of "second-tier supply business", the first point to note is that this business is concerned solely with the sale of electric power to bulk power consumers. Secondly, it is referred to in both the Distribution Rules and the Generation Rules. In the former, second-tier supply business appears, as presently relevant, in Rule 7, which deals with the exclusivity of the distribution licence. An examination of this rule, and in particular sub-rules (2) to (4) shows that the latter were clearly drafted with section 22 in mind. The rather convoluted wording of sub-rules (2) to (4) intended to cater for various situations that could arise on account of a distribution licensee being able to obtain permission to sell electric power to bulk power consumers in the service territory of another licensee, and the effect this would have on the latter. In my view, with section 22 having ceased to apply on account of the sunset clause, these sub-rules must now also be regarded as having become inapplicable. The position of distribution licensees, unless there is something expressly to the contrary in their licences, must now be regarded as being the same as was earlier governed by what was the proviso to sub-rule (3), i.e., each licensee has the right to supply electric power to the bulk power consumers in its service territory. As already noted, this right is exclusive.
15. I turn to the Generation Rules. It will be recalled that during the 15 year period, either, or both, of
(i) the proviso to section 21(2)(a), and (ii) section 22 could apply to a generation company: the former in respect of the service territory of the distribution licensee where the generation company operated and the latter in respect of the service territory of some other distribution licensee. Now, a generation company that obtains a generation licence is thereby entitled to undertake "generation business" (see Rule 3). This is a defined term: Rule 2(xii). The definition shows that such business is of two sorts. One sort is covered by the first portion of the definition. It is the business of availability and provision of electric power or ancillary services or other related business", undertaken through the means specified immediately thereafter in the definition. As the definition makes clear, this is the business that is conducted "pursuant to and in accordance with the terms of the generation licence granted to the licensee". The second sort is that specified in the last part of the definition. It is the second-tier supply business. It is to be noted that while the first sort of business is preceded by the word means", the latter starts with the word "includes" and is further qualified by the words "where applicable". This definitional division of businesses has certain important consequences.
Firstly, it is clear that the first sort of business is business other than second-tier supply business.
Put differently, the first sort of business cannot be regarded as including anything that would be in the nature of second-tier supply business. If this were so, the distinction sought to be established by the definition would be obliterated. Secondly, the first short of business is the one for which the generation licence is granted, because (by definition) it is the business that is conducted pursuant to and in accordance with the terms thereof. Thirdly, the second-tier supply business is optional in the sense that the generation company may or may not engage upon it. This is clear from the words "where applicable", which necessarily mean that there can be situations where what follows is not applicable, and also by the further use of the word "includes".
16. Rule 7 deals with second-tier supply business. It is clear that only a licensee (i.e., a person who holds a generation licence and is thus entitled to engage upon the first sort of business specified in the definition in Rule 2(xii)) can be authorized to conduct second-tier supply business. A necessary corollary is that a generation licence cannot be issued for second-tier supply business. Such business is, as it were, over and above and in addition to that provided for in the generation licence. Now, when the generation licence issued to Lotte Powergen is examined, it contains the following definition in Article 1.1(d): "Tower Purchaser' means a Bulk Power Consumer which purchases electricity from the Licensee, pursuant to a power purchase agreement for procurement of electricity". The definition is exhaustive and this means that Lotte Powergen can only supply electric power to bulk power consumers. However, such business is nothing other than second-tier supply business. Prima facie, this licence appears therefore to be contrary to the Generation Rules: a generation licence must be in relation to the first sort of business specified in Rule 2(xii), and this must be a business other than second-tier supply business. Yet, the licence issued to Lotte Powergen appears to be limited to second-tier supply business. Furthermore, if this licence is valid, then it calls in question the authorization granted in terms of Rule 7. This is so because such authorization would not be required. Lotte Chemical would be a "power purchaser" within the meaning of Article 1.1(d), and Lotte Powergen would be able to enter into a power purchase agreement with it under the licence itself. In my view, prima facie the generation licence issued in the present case is in breach of the Generation Rules, and there is a fundamental contradiction between the licence as issued and the authorization granted under Rule 7. This clearly calls in question the business activity that Lotte Powergen seeks or intends to undertake.
17. The more fundamental question with regard to Rule 7 is whether it survives the end of the 15 year period? Can there at all be any second-tier supply business now that the proviso to section 21(2)
(a) and section 22 have become inapplicable? In my view Rule, 7 cannot be regarded as having become wholly inapplicable but it must be read down appropriately. With effect from 14-12-2012, no permission could be granted by NEPRA under Rule 7 to any generation company in any D situation to which either the proviso or section 22 would have applied. However, there may be situations where there is a bulk power consumer who does not come within the service territory of any distribution company. It may be that Rule 7 can apply in such a case. Since that is not the situation at hand this point does not need be considered in detail.
18. Before proceeding further, one point must be made clear. Nothing in this decision is intended to apply to any licence issued, authorization made or permission granted by NEPRA during the 15 year period, whether in terms of section 15, the proviso to section 21(2)(a), section 22 or otherwise: All such licences, authorizations and permissions would continue to apply on their own terms, subject to applicable statutory provisions. However any modification or extension of any such licence, authorization or permission, if made or done on or after 14-12-2012, is a different matter. Such modification may or may not be valid. Since such issue does not arise here, I expressly leave it open for consideration in an appropriate case.
19. It remains only to consider the Determination by NEPRA in light of what has been stated herein above. The relevant portion has been reproduced in Annex II. The observations in para (iii) of the extract, in relation to the proviso to section 21(2)(a) are clearly wrong and must be rejected as such. The exclusivity to which a distribution licensee is entitled is not limited to the distribution business but extends also to the sale of electric power to consumers. The proviso carved out an exception for the 15 year period, in terms as explained above. Indeed, the very existence of the proviso points towards the exclusivity that NEPRA. Has mistakenly sought to deny in the Determination. As regards section 22, NEPRA's assertion in para (iv) that "the spirit of the law is clear that even after passing of fifteen years time period, it will be open for Generation Company to sell electricity to a BPC by only obtaining a Generation Licence" is patently incorrect and must be rejected. The section is clear and explicit. How the "spirit" of the law can contradict the express language of the parent statute and somehow empower or enable NEPRA, the creature of the said statute, to bypass what the legislature has put down in black and white, is something that is altogether beyond comprehension. NEPRA's reasoning and conclusion are untenable. Furthermore, NEPRA's interpretation and application of Rule 7 is also clearly incorrect. The correct position has been set out herein above. In para (v), NEPRA takes up KESC's contention that the supply of electric power by Lotte Powereen to Lotte Chemical would violate subsection (2) of section 22. That provided that if a bulk power consumer intended to stop purchasing power from a distribution licensee it had to give a three year notice in writing before such stoppage. NEPRA notes that Lotte Chemical "has never shown its intention to stop purchase of power from KESC and wants to remain consumer of KESC" and that since it "wants to continue with existing arrangement under the power purchase agreement therefore unless [Lotte Chemical] doesn't show its intention to stop purchase of electricity such notice is not required to be given to KESC". However, it is nowhere denied that the effect of drawing power from Lotte Powergen would be that for all practical purposes the KESC supply would go on standby. In any meaningful sense this could, prima facie, amount to a "stoppage" of power purchase. At the very least, it could violate the spirit of section 22(2) even if it does not breach the strict letter of it. NEPRA, otherwise so keen on the "spirit" of the law, has failed to appreciate what prima facie could be a serious violation of it in the present case. This is something that, prima facie, ought to be obvious to any reasonably alert regulator. In my view, for all of the foregoing reasons, the determination is fundamentally flawed both in its understanding and application of the relevant provisions and the reasoning deployed therein, and prima facie cannot be allowed to stand.
20. On account of what is stated hereinabove, I am of the view that KESC has made out a strong prima facie case that the authorization granted to Lotte Powergen to engage in second-tier supply business, and a prima facie case that the generation licence as issued, are contrary to law and invalid. In my view, the balance of convenience lies in favour of KESC and against the Lotte defendants. As noted above, learned counsel for the Lotte defendants submitted that the power generation facility was established under Lotte Powergen at least in part to take advantage of certain fiscal benefits. If the Lotte defendants wish to avail the benefits that the law confers, then they must also comply with the terms thereof, and if they fail to do so, they act at their own peril. It is not denied that bulk power consumers are prized customers for any distribution licensee. To deny KESC the benefit of a continued material relationship with Lotte Chemical would be more inconvenient to it than denying Lotte Powergen the opportunity to sell power to the latter would be to the Lotte defendants. Furthermore, KESC may well suffer irreparable loss and injury if interim relief is denied. The loss on account of a bulk power consumer may well not merely be in terms of the lost income stream. Bulk power consumers consume such large amounts of power that if any one of them goes offline, it may create systemic issues for the distribution licensee. The possibility of a domino effect must also be kept in mind.
21. Accordingly, this application is allowed in terms that Lotte Powergen is restrained from supplying, selling or disbursing electricity to Lotte Chemical either in reliance upon the generation licence dated 26-11-2013 or the authorization or permission granted for second-tier supply business, whether in terms of section 22 or Rule 7, or otherwise. The Nazir of the Court must, within 10 days hereof and after notice to the parties, visit the premises where Lotte Powergen's facility is located and take all such steps and do all such acts as are 'necessary or appropriate (including, without limitation, by affixation of seals and disconnecting or dismantling of supply or other lines without however doing any permanent damage) to ensure that the terms of this order are complied with. The Nazir may, if he so deems appropriate, allow KESC to install such metering or detection equipment in such manner as the Nazir permits, to ensure that strict compliance of the terms of this order is monitored at all times. The Nazir shall prepare a report and take photographs as necessary. The Nazir or any person authorized by him shall, either on his own motion or on a complaint made by KESC, have the right to inspect the aforesaid facility at any time (with or without notice) and the Nazir or authorized person must be given immediate and complete access by the defendant Nos. 1 and 2. Any interference or delay shall be deemed a violation of this order and dealt with accordingly. The fee of the Nazir for the foregoing exercise is tentatively fixed at Rs.
100,000/-, payable by KESC. The Nazir may, for taking any steps or doing any acts as aforesaid deploy such persons as he may deem appropriate, including, if he so allows KESC personnel, for such period and in such manner as he directs, and all such persons must be given such assistance and immediate access to the Lotte Powergen facility (including its records) as the Nazir deems appropriate. The Nazir may also if he so deems appropriate, engage the services of an expert. All expenses incurred for the foregoing shall be borne by KESC and must be paid/settled promptly, and shall be in addition to the fee tentatively fixed herein above.
22. The application, C.M.A. 14431 of 2013, stands allowed in the foregoing terms.
ANNEX-I Relevant statutory provisions ' A. Regulation of Generation, Transmission and Distribution of Electric Power Act. 1997 ("1997 Act")
2. Definitions.---In this Act, unless there is anything repugnant in the subject or context,
(ii) "bulk-power consumer" means a consumer who purchases or receives electric power, at one premises, in an amount of one megawatt or more or in such other amount and voltage level and with such other characteristics as the Authority may determine
(v) "distribution" means the ownership, operation, management or control of distribution facilities for the movement or delivery or sale to consumers of electric power but shall not include the ownership, operation, management and control of distribution facilities located on private property and used solely to move or deliver electric power to the person owning, operating, managing and controlling those facilities or to tenants thereof;
(vi) "distribution company" means a person engaged in the distribution of electric power;
(vii) "distribution facilities" means electrical facilities operating at the distribution voltage and used for the movement or deli very of electric power;
(xi) "generation" means the ownership, operation, management or control of generation facilities for delivery or sale of electric power and not solely for consumption by the person owning, operating, managing, and controlling those facilities;
(xii) "generation company" means a person engaged in the generation of electric power; (xiii)"generation facility" means the electrical facility used for the production of electric power;
15. Generation licence.---(1) No person shall, except under the authority of a licence issued by the Authority under this Act and subject to the conditions specified in this Act and as may be imposed by the Authority, construct own or operate a generation facility. ...
21. Duties and responsibilities of distribution licensees.---(1) The Authority may, after such enquiry as it may deem appropriate and subject to the conditions specified in this Act and as it may impose, grant a licence for the distribution of electric power.
(2) The licensee shall-
(a) possess the exclusive, right to provide for such period as may be specified in the licence, distribution service and to make sales of electric power to consumers in the territory specified in the licence and to frame schemes in respect of that territory: ' Provided that a generation company may make sales of electric power to bulk-power consumers within such territory as the Authority may, subject to section 22, for a period of fifteen years, allow; ...
22. Sale to bulk power consumers.---(1) Notwithstanding anything contained in section 21, for a period of fifteen years from the commencement of this Act, the Authority may permit a generation company or a distribution company to sell electric power to bulk power consumers located in the service territory of another distribution company and such permission shall be granted---
(i) on a case to case basis on an application made in writing by a generation company or a distribution company; and
(ii) if the bulk-power consumer has, not defaulted in previous charges of electric power to any other distribution company.
(2) Where a bulk power consumer intends to stop purchase of electric power from a distribution company, it shall convey its intention by notice in writing three years before such stoppage: ' Provided that such consumer shall continue to make payments to the distribution company equal to the amount of cross-subsidy for uneconomic service for which it would otherwise have provided through purchase of electric power by the bulk power consumer.
B. National Electric Power Regulatory ' Authority (Distribution) Rules. 1999 ("Distribution Rules")
2. Definitions.---(1) In these rules, unless there is anything repugnant in the subject or context,-
(vi) "bulk-power consumer" means, in respect of and within the Service 'Territory, such consumer who receives or purchases, electric power in the amount, voltage level and frequency equal to or greater than the Characteristics of supply set out in the distribution licence, ...
(x) "distribution business" means the business of distribution of electric power carried on or to be carried on by the licensee pursuant to and in accordance with the terms of the distribution licence granted to the licensee ;
(xvi) "licensee" means the licensee to whom a distribution licence is granted in accordance with these rules ...;
(xxiv) "second-tier supplier" means any distribution or generation licensee authorised to carry-out the second-tier supply business;
(xxv) "second-tier supply authorisation" means an authorisation to engage in the second-tier supply business;
(xxvi) "second-tier supply business" means the authorised business, if any, of the licensee or any of its affiliates as a supplier, whether or not carried out pursuant to a power acquisition contract, of electric power to one or more bulk power consumers within or without the Service Territory;
(xxix) "Service Territory" means the area specified in the distribution licence within which the licensee is authorized to conduct the distribution business and, subject to the provisions of rule 7, the second-tier supply business;
3. Grant of licence.---(1) Subject to and in accordance with the provisions of these rules and the NEPRA rules and regulations, the Authority may grant a distribution licence to any person to engage in the distribution business within the Service Territory. ...
7. Exclusivity.---(1) Subject to the provisions of sub-rule (2), the licensee shall have during the term of the distribution licence the exclusive right in respect of the Service Territory to:--
(a) distribute electric power to the consumers;
(b) bill the consumers and collect the tariff for electric power distributed within the Service Territory; and
(c) engage in other activities incidental to the distribution business.
(2) Subject to and in accordance with the NEPRA rules and regulations, and unless provided otherwise in the distribution licence, the Authority may authorise any licensee to be a second-tier supplier to one or more bulk-power consumers in respect of the Service Territory on such terms and conditions and for such term as may be specified in the second-tier supply authorisation, provided that, the Authority may specify a time period in the distribution licence after which a second-tier supply authorisation shall no longer be required by any licensee proposing to engage in the second-tier supply business for supply of electric power to one or more bulk-power consumers within the Service Territory.
(3) Notwithstanding the provisions of sub-rule (2), the Authority may stipulate in the distribution licence not to grant a second-tier supply authorisation to any other licensee in respect of the Service Territory for such period of time or to grant one or more second-tier-supply authorisation for such time period and on such terms and conditions as may be specified in the distribution licence of the licensee, provided that until such time the second-tier supply authorisation is granted to another licensee, the licensee shall have the right to supply electric power to bulk- power consumers located within its Service Territory without requiring to obtain any second-tier supply authorisation in respect thereof.
(4) Subject to the terms and conditions of a distribution licence granted to a distribution licensee other than the licensee, and subject further to the provisions of NEPRA the rules and regulations, the licensee shall have the right, during the term of his distribution licence, to apply to the Authority for the grant of a second-tier supply authorisation in respect of the Service Territory of another distribution licensee.
C. National Electric Power Regulatory Authority (Generation) Rules, 2000 ("Generation Rules")
2. Definitions.---(1) In these rules, unless there is anything repugnant in the subject or context,-
(xii) "generation business" means the business of availability and provision of electric power or ancillary services or other related business through the construction, ownership, management, control or operation of the generation facilities or the licensee interconnection facilities carried out, or to be carried out, by the licensee, whether itself or through an agent or sub-contractor approved in this behalf by the Authority, pursuant to and in accordance with the terms of the generation licence granted to the licensee and, where applicable, includes the second-tier supply business carried out by the licensee; (xviii) "licensee" means the licensee to whom a generation licence is granted in accordance with these rules....
(xxviii) second-tier supplier" means any licensee authorized to carry out the second-tier supply business;
(xxix) "second-tier supply authorization" means an authorization to engage in the second-tier supply business;
(xxx) "second-tier supply business" means the authorized business, if any, of the licensee or any of its affiliates as a supplier of electric power or ancillary services to a bulk-power consumer;
3. Grant of licence.---(1) Subject to these rules and the other NEPRA rules and regulations, the Authority may grant a generation licence to any person to engage in the generation business. ...
7. Second-tier supply business.---Subject to the NEPRA rules and regulations, and unless provided otherwise in the generation licence, the Authority may authorize the licensee to engage in second- tier supply business on such terms and conditions and for such period as may be specified in the second-tier supply authorization, provided that a second-tier supply authorization shall not be required by the licensee --
(a) in case of sale or delivery of electric power or ancillary services to bulk-power consumers situated in the service territory of a distribution licensee, from and after the date and on compliance with the applicable terms and conditions specified in this behalf by the Authority by notification in the official Gazette; and
(b) in case of sale or delivery of electric power or ancillary services to a special purpose transmission licensee or a distribution licensee, from and after the date of approval of the power acquisition programme of such transmission licensee or distribution licensee, subject, however, in each case to the terms and conditions of the pooling and settlement arrangement, or the provisions of rule 10 in respect of the unit commitment or the availability of the licensee's net capacity for dispatch by the national grid company. ANNEX II Extract from the Determination by ' NEPRA dated 20-11-2013 [NOTE: LPCL/LPPTA = Lotte Chemical; LPGPL = Lotte Powergen] (E). Decision of the Authority
(i) The Authority considers that availability of sufficient electricity at affordable prices with a reasonable mix of Hydel, Thermal and other Renewable Energy (RE) is imperative for the sustainable economic development of the country. The country is currently facing severe shortage of electricity thus hampering the economic activities. In view of this, the Authority considers it imperative that addition in power generation capacity from any of the available sources is added to the system either in the National Grid or operating in isolation to the National Grid.
(ii) The Authority is well aware that presently there is severe shortage of electricity in the country and there is huge Supply-Demand gap. In view of this, the Distribution Companies are facing difficulties in serving their consumers. Due to the prevailing situation, the Industrial Units are forced to make their own arrangements to meet their electricity requirements.
(iii) The Authority has considered the comments/observations/ objections of the stakeholders as explained above. Furthermore, the Authority has, also taken into consideration the response of LPGPL. The primary issue raised by the KESC during the hearing was regarding its exclusivity for provision of service within its defined service territory. On account of exclusivity it was claimed by KESC that no Generation Licence can be issued by the Authority to provide sale of electric service within its territory. The Authority considered the objections of KESC as regard to exclusivity qua its Service Territory and observed that under section 21 of the NEPRA Act, while prescribing the duties and responsibilities of a Distribution Licensee, legislature has put a responsibility on the Distribution Licensee to provide safe and reliable electric service in its defined Service Territory where the Licensee shall possess exclusive right to provide distribution services and sale of electric power to consumers. The Distribution Licensee is also obliged to provide in its Service Territory on a non discriminatory basis, the distribution services to all its consumers which meet the eligibility criteria laid by the Authority. It is pertinent to note that proviso to section 21(2)(a) prescribes that a generation company may make sale of electric power to a Bulk Power Consumer (BPC) within the Service Territory of a Distribution Licensee subject to section 22 of the NEPRA Act and with approval by the Authority. Therefore, the Authority is of the view that exclusivity of the distribution licensee is restricted to the distribution activity and not as regard to the generation busiftess by a generation company. Under the said proviso any generation company is encouraged to construct, own or operate a generation facility for selling electricity to a BPC subject to approval by the Authority. The Authority notes that the application for generation licence has been filed by LPGPL to provide electricity to LPCL/LPPTA as a BPC. It may be added that the proposed BPC is located within the premises where generation facility exists. Therefore, LPGPL in terms of section 2(v) of the NEPRA Act does not require a Distribution Licence and accordingly exclusivity of the KESC distribution service for provision of electric service within its service territory shall not be affected.
(iv) Upon the issue of the exclusivity, KESC has also stated that it has the exclusivity in its service territory in terms of sections 21 and 22 of NEPRA Act. It has been further stated that after fifteen (15) years as mentioned in section 22, the Authority lacks the powers to authorize LPGPL to sell electricity within exclusive territory of KESC. In this regard, the Authority holds that the period mentioned in section 22 of the NEPRA Act provides for a general permission for the generation companies to sell electricity within service territory of a distribution company for fifteen years from the commencement of the NEPRA Act.. The Authority considers that the spirit of the law is clear that even after passing of fifteen years time period, it will be open for Generation Company to sell electricity to a BPC by only obtaining a Generation Licence. It is also relevant to state that under Rule 7 of the Rules it has been specifically stated that second tier supply authorization shall not be required from and after the date and on compliance with the applicable terms and conditions specified in this behalf by the Authority by notification in the official Gazette. It is a matter of record that such notification has not been issued by the Authority in view of the term of the licence of the distribution companies and therefore Authority intend to continue allowing second tier supply authorization to generation companies on a case to case basis. Without prejudice to the foregoing, it is worth mentioning that the spirit of NEPRA Act is to promote competition and efficiency therefore plea of KESC that after the completion of the fifteen years period of the commencement of the NEPRA Act, the Generation Companies shall not be entitled to sell electricity to BPCs within service territory is misconceived.
(v) The Authority has also noticed that KESC has claimed that as per section 22 of the NEPRA Act, 1997 a notice of three years is required to be given by the BPC to KESC. In this regard BPC is also obliged to pay cross subsidy to the KESC for uneconomic service on account of not purchasing power from KESC. The Authority has observed that in response thereof LPGPL has submitted that LPCL/LPPTA i.e. The BPC in this case, has never shown its intention to stop purchase of power from KESC and wants to remain consumer of KESC. Therefore, a notice is not required to be given to KESC by the LPCL/LPPTA. Authority is of the view that issue of notice under section 22 is required to be given when BPC shall intend to stop purchase of power from KESC, therefore since LPCL/LPPTA wants to continue with existing arrangement under the power purchase agreement therefore unless LPCL/LPPTA doesn't show its intention to stop purchase of electricity such notice is not required to be given to KESC. Another related issue is of maintaining connection of KESC by LPC/LPPTA on standby which is pending before honorable Sindh High Court. In this regard LPCL/LPPTA has filed a suit for permanent injunction against any action of KESO to disconnect electricity, therefore Authority is of the view that question of maintaining connection on standby shall appropriately be decided by the Honorable Court. We also note that terms and conditions of PPA entered into between KESC and LPPTA for provision of 40.00 MW is a private contract and unless a dispute about the same is not referred to Authority, it shall not be appropriate to give a verdict on such issue.
(iv) During the hearing it was also submitted by KESC that in the said suit there has been no mention of LPGPL as a separate legal entity. Therefore it is contradicted for LPGPL to file the instant application before the authority for generation license. It has been stated by KESC that until the suit of LPCL/LPPTA is not finally decided by the honorable court, status quo may be maintained in the generation license proceedings. On such plea of KESC, Authority observes that record of the case shows that the suit filed by the LPCL/LPPTA is against the KESC for avoiding disconnection, and the honourable Court through its order dated August 27, 2012 has directed KESC not to disconnect electricity of LPPTA. Therefore essentially instant proceedings for grant of licence shall not prejudice the rights and remedies of KESC against LPCL/LPPTA. Authority has also noticed that no status quo order has been passed by the honourable Court whereby the Authority has been sustained in processing the case of LPGPL. Therefore, the Authority considered it appropriate to proceed further in the instant proceedings. ... revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.