Another 90 paisas per unit have been approved as monthly Fuel Charges Adjustment (FCA) for January 2021, continuing with the trend that started in July 2020. The monthly FCA so far in FY21 has averaged a little over Re1 per unit. With international energy commodity prices moving sharply north, it appears the upcoming monthly FCAs could well be on the higher side.
Bulk of the January 2021 FCA is allowed on provisional basis, as the month saw highest RFO based generation in over two years – and the highest for January in four years. Nepra has once again raised concern over the use of inefficient plants and the non-adherence to the Economic Merit Order. An additional note with the FCA decision laments the System Operator for not doing enough to ensure LNG supply.
Recall that Pakistan faced trouble in January 2021 to arrange LNG cargoes on spot, and it was only at the last minute that supply was arranged. Total LNG supply in January 2021 was around 10.5 cargoes (March 2021 saw 11 cargoes), which is clearly not enough, considering the peak demand owing to winters. Pakistan’s domestic sector continues to sit on the top supply priority, therefore, power sector not getting enough was not a surprise.
That said, more timely arrangement of RLNG could have resulted in higher power generation from the low cost and more efficient RLNG power plants, which generated less than 1 billion units in January 2021. The additional note with the FCA decision places the responsibility with the Central Power Purchasing Agency (CPPA), asking for explanation.
The System Operator informed that the RLNG requirement was timely indented with the authorities, but the supply of the same could not be ensured despite subsequent reminders. The Ministry of Planning also raised similar concerns on the usage of costlier RFO power plants. The decision clearly states that necessary adjustments will be made, having sought explanation from the CPPA. This has not happened for the first time. And nothing suggests this was the last either.
Winters after winter, the load invariably falls on the RFO plants – because of the gas supply constraints and misplaced priorities. Pakistan may receive slightly more imported gas in the next winters, but do not expect that to drastically change the winter power generation mix. The priority list is still headed by domestic consumers – and there remains enough shortfall in peak winters, for the power sector to be able to get close to its requirements.
The reference tariff for February is Rs3.97 per unit – and the actual fuel cost in February 2020 was Rs5.18 per unit. The mix has by and large remained the same in 2021 – but the fuel prices have gone considerably higher. Expect monthly FCA to be significantly higher in the months to come, unless there is a reversal in oil price trajectory.