March’s Fuel Charges Adjustment (FCA) has been approved by the regulator at Rs2.87 per unit. This is a respite of sorts, being the lowest monthly adjustment in six months. But this could well be the only respite on offer in the near future, as Pakistan’s power sector continues to operate with all-so-usual problems of miscoordination, rising payment issues, unbudgeted subsidies, and hard fuel supply and price choices.
Nepra’s decision comes with a dissent note, questioning the operators’ inability to procure timely RLNG, leading to suboptimal utilization of various efficient RLNG plants. Recall that most RLNG plants have efficiencies in the range of 51-60 percent, and the utilization factor for all bars one remained significantly under 50 percent. Needless to say, the system demand is then met through other expensive options with lower efficiencies, on furnace oil, adversely affecting the overall cost of power generation.
It appears that the government will manage to secure more if not enough RLNG for the upcoming peak consumption months as RLNG cargoes have been booked at sky-high rates. This alone does not guarantee that there will be reduced generation on furnace oil, as furnace oil plants have mostly made up for the loss in hydel generation.
The water levels at the reservoirs thus far do not read an encouraging report. Next two to three weeks are crucial for hydel generation to contribute the usual one-third to overall generation in peak consumption season. A reduced hydel contribution would put more pressure eon less efficient thermal plants running on furnace oil, which will further inflate the fuel bill. Coal now forms an integral part of the generation mix and the prices are at an all-time high - ensuring fuel cost will be firing from all cylinders in the near future.
A small matter of 57 paisas per unit will also be added in lieu of quarterly adjustment for 1QFY2, to be collected for three months starting Jun 2022. The fate of electricity relief package of Rs5/unit will soon be known as well, and a withdrawal seems highly likely. Unless there is a dramatic turn of events in the international commodity market, Pakistan’s power generation cost is expected to remain elevated for the months to come.