Power demand has made a strong comeback in FY20. Having gone down for five months on the go, September 2019 recorded the fifth consecutive month of year-on-year generation increase. Recall that load shedding had by and large been eradicated by June 2018 – so the 9 percent year-on-year increase, which is also the highest in 12 months – is all organic.
Three straight months of 13 billion units plus power generation is also a first. It can be safely said that the system capacity is running rather smoothly, and the demand suppression is over. Also heartening is the fact that hydel power generation has improved tremendously, both in terms of absoluter generation and the share. Hydel generation in the last three months has contributed 37 percent of total power generation, whereas share of FO based power generation has been reduced to just 5 percent.
Very good signs are these. The seeds of improved generation mix and increased capacity were sowed in the PML-N tenure, and they must be duly credited. So now, there is enough power, and it is also being generated with an ever improving fuel mix. The inflation hit consumers should now be rejoicing as improved generation mix should result in lower fuel cost and resultantly, some relief on account of monthly adjustments. No? There must be some respite one may ask.
There is none. If anything, the last three months have seen incidences of highest monthly fuel price adjustment increase in over three years. That for July and September is yet to be notified by Nepra, but the recommended increase is as high as Rs2.97 per unit, which is more than 20 percent increase in monthly tariffs. Upward adjustments of such magnitude have now happened for every month of FY20, despite all-time better plant availability and improved fuel mix. This is becoming a norm, and at this rate, actual tariffs would be significantly higher than previous year. Thankfully, the same is now reflected in CPI.
Why this massive deviation from the reference prices? The fault lies in the forecasting models and assumptions, where absurd values are factored in, for variables as key as, exchange rate. Bulk of this deviation is because of the massive currency depreciation, which will keep resulting in increased monthly fuel price adjustment.
And the thing about monthly FPA is that unlike base tariff revisions, upward adjustments also levy on domestic consumers using more than 50 units up to 300 units. If this goes on for most of the year, will have a significant dent on CPI going forward, as 80 percent of domestic consumers otherwise insulated from base tariff increase, will also face the brunt.
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