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Pakistan’s power system generation has grown by 2.5 percent year-on-year in the seven months of the fiscal year so far. It went up by 5 percent year-on-year in January 2021. Going by the government’s claim, the electricity consumption by the industrial sector went up by a substantial 17 percent year-on-year in January, after having gone up by 9 percent year-on-year in December 2020.

Recall that the government has laid down the plan to incentivize incremental consumption and has also abolished the peak hour tariffs. It certainly is heartening to see the industrial demand going up in double digits. Considering that 50 percent of the total demand is generated from the domestic sector, this also suggests there is static to negative demand growth from domestic consumers. This is surely a first in many years.

The increased share of industrial electricity sales in the overall pie would certainly be a relief for the distribution companies, in terms of the billing collection. Most industrial units are believed to be near 100 percent in terms of cost recovery. Now, as the government intends to gradually shift the load from captive power to the grid, the share of industrial power consumption would surely increase considerably meaningfully, and the impact on losses and improvement in collection could be rather more meaningful.

And now the generation mix. Ever since the furnace oil phasing out began three years ago, January has usually been the month with considerable share of furnace oil in power generation. January 2021 saw FO constituting 12 percent of total generation, up from 10 percent for January 2020. The billion units on FO produced in January were the highest in 24 months.

The RLNG share went down to 11 percent or 0.9 billion units, which is the lowest January reading in 4 years. There is not much wrong with the RLNG power plants. They are available and are considerably higher than the FO plants on economic merit order. It is just that the fuel supply is limited in peak winters, and the government attempts to manage the rising demand for the priority domestic sector.

The hydel generation also goes down to the lowest every January, which is why January’s reference tariff at Rs5.76 per unit is highest for any month. The load invariably shifts to FO based plants, despite them not qualifying on merit, as dependable generation to cater load becomes imperative. The system seems to have missed the reference fuel tariff for January 2021 again by almost Rs1/unit, which would be the seventh straight month of upward revision being sought (and later allowed) in lieu of fuel charges adjustment.

Mind you, the monthly FCA adjustments so far only reflect the system lapses and violation of merit order. The oil prices have only started to move upwards very recently, and that will have a telling impact on actual FCAs to be well over the reference fuel tariff in the months to come, as imported fuel remains critical to the system. The benefits of improved generation mix were never really reaped in terms of energy affordability, as the capacity charges kept on increasing. And now it seems, the fuel component is not offering much of a breather either.

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