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Pakistan’s power system generated 122 billion units in FY20. It had generated 122.7 billion units in FY19. And 121 billion units in FY18. The capacity in the meanwhile has continued to be added. Power demand has struggled to keep up, and the economic slowdown is to blame for that. That, plus the inherent flaws in the system that also continues to incentivize off-grid solutions add to the woes.

The monthly power generation data has now been made public after a long gap of six months – and the 2HFY20 power generation is down by 4 percent year-on-year. Given the overall passive trend, and throwing in the Covid scenario, the outcome seems reasonable. The power generation mix has undoubtedly improved over the years – and F20 was the best in terms of generation mix.

The hydel generation share for the first time in many years crossed 30 percent for the full year, as better water availability and more contribution from a number of smaller hydropower plants both contributed. The axe has rightly fallen on the Furnace Oil (FO) based power generation, the share of which has come down from the highest fuel source at 30 percent in FY17 to lowest used fuel source at 3 percent in FY20.

That space has been filled largely by coal power – mostly imported, followed by RLNG. Coal generation surpassed RLNG for FY20, despite RLNG having higher available capacity. The simple reason is considerably lower fuel cost for fuel, which averaged Rs6 per unit in FY20, even lower than domestic natural gas. RLNG based fuel cost alone averaged Rs10/unit in FY20, despite considerably lower oil spot prices in the second half of FY20. Pakistan’s long-term LNG contract with Qatar meant a sizeable quantity of RLNG arrived at higher rates than spot rates.

Improved fuel mix has its benefits, which can be seen from the fact that the total fuel bill for FY20 at Rs600 billion for almost similar amount of generation as FY19 And FY18 – is lower by 10 and 5 percent, respectively. Take into account the currency depreciation and it appears even more commendable. But all of that has resulted in more affordable electricity – because the other component of the power tariff that is the capacity payment ensures the overall tariffs remain high.

Yes, you can find solace in the fact that things would have been worse had fuel mix not improved. The government owned power plants are a big source of capacity payments. All those RLNG units not produced were still paid the charges for being available, on top pf very high fuel charges. That is not going to change anytime soon. So, the improvement will continue to have to come from the fuel side, in order to not let the tariffs go absolutely wild. Affordable power appears a very unlikely event in the next few years. Pakistan would do very well to just limit the increase.