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Pakistan’s power sector (ex KE) generated 124 billion units in 2018. Another 124 billion in 2019. And 123 billion in 2020. You do not have to look to any other data set to get an idea how Pakistan’s economy has been in a struggling phase for the best part of 2 years. December 2020 net power generation at 7.8 billion units is only 3 percent higher year-on-year.

Read that with the government’s claim that the incentive offered for incremental consumption to industries has yielded good results. As per the government, industrial consumption went up by 8.5 percent year-on-year in December, which shows that domestic consumption could be on a decline. There is little evidence to suggest the same, but the overall system demand does remain a concern. The generation mix is unrecognizable from two to three years ago and is now a well-established fact. The same has also reflected in reference fuel tariffs, which once used to be the bulk of the Power Purchase Price. But the overall generation cost has gone up, and the benefit of improved generation mix never really translated into reduced tariffs – the reasons of which are plenty and known.

For December 2020, furnace oil said hello again. Not purely on merit, but then merit violations do not really make big news in Pakistan. The use of furnace oil in most cases is not necessarily sinister or “mafia” at play as some circles would like you to believe. As the winters arrive, more gas is routed to domestic sector, and other fuels take precedence over indigenous and imported gas.

Most coal power plants sit high in the merit order, hence the increased share. For the first time ever, share of coal-based generation has surpassed that of RLNG. LNG’s higher prices do have a role to play for sure, but there is more to the story than what meets the eye. The RLNG power plants, which are some of the most efficient going around, do not run at full capacity, not because there is not enough fuel available. That is largely because the transmission constraints do not allow RLNG plants to run at full steam. Worse still, the capacity payments do not cease to exist in case of not running the plants when available, because of the take or pay contracts.

Then there is an increasingly worrying case of high inefficiencies at the indigenous gas-based power plants. The price differential between indigenous gas for power sector and imported RLNG is still substantial, but the power generation cost per unit for indigenous gas now matches that of RLNG. Last two months have seen gas-based power generation cost close to Rs8/unit – highest ever, which is a tell-tale sign of inefficiency.

Resultantly, the monthly actual fuel charges have for the sixth month running exceeded the reference fuel cost. December’s fuel adjustment sought is the highest in over a year at Rs1.8 per unit. Monthly FCA has averaged Rs 1.1 per unit in 1H FY21 – comfortably higher than any previous six-month period. Mind you, this has happened during relatively cooler international oil prices and stable currency. That is where the fruits of improved fuel generation mix are not reaped to the fullest.

The government has decided to make room for power in the grid by curtailing gas to the captive power units. An estimated 3000 MW of additional demand would be a welcome move, but with the system constraints going nowhere, it will be easier said than done, dealing with all the additional load from industries. The capacity to generate alone won’t solve the problem. Here is hoping there are plans in place to speed up the transmission improvements before another case of inefficiency leads to more power losses.