Fuel price finally adjusted

The power regulator has approved the long overdue monthly Fuel Price Adjustments (FPA) for eight months starting November 2019. The hearing has resulted in a significantly revised allowance in FPA than what the Central Power Purchasing Agency (CPPA) had earlier sought. The FPA allowed by Nepra would lead to an average increase of a negligible 5 paisas per unit per month – down from 40 paisas sought.

The combined impact in rupee terms is a minuscule Rs3.5 billion spread over right months – down from Rs27 billion that was originally asked. The biggest deviation has been observed in the last quarter of FY20, where Nepra has allowed a negative average adjustment of Re1 per unit – double than what was submitted for hearing by the power purchaser.

As anticipated earlier, the FPA for eight months will be charged in the bills for August and September 2020, with four months adjustment charged in each month. There is a catch with negative monthly adjustments though, as they do not apply to domestic consumers consuming up to 300 monthly units, and agriculture consumers.

So the adjustment made in August bills for majority of domestic consumers will be for units consumed in January, February and March only – which averages Rs0.8 per unit. The adjustment billed in September would only factor in November and December consumption – as April and June FPA is in the negative zone. The official figures place 78 percent of domestic consumption falling in the 300 units consumption category. One would assume that the share drops in periods of high consumption such as May and June – and the actual number of consumers benefiting from negative adjustment would be slightly more than the annual average.

In terms of inflation computation, the monthly FPA would be a massive relief, as the number for last year for August and September averaged Rs1 per unit, which is down to a few paisas now. The PBS now takes into account monthly FPAs, and that should reflect in electricity price sub-index for August and September.

While the eventual settlement of the long overdue monthly FPAs is welcome, the real deal remains the government’s ability and capacity to make a decision on the annual base tariff revisions, and passing on pending quarterly tariff adjustments, which have accumulated to over Rs160 billion (Rs1.5 per unit). Rumor has it that the tariffs would be revised with effect from September 2020. The proof will surely be in the pudding. Any more delays on this front, could have more telling consequences for the IMF tranches, or even the programme itself.