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For the second month running, electricity fuel tariff monthly adjustment has returned negative value. April 2021 generation and cost of generation data is out, and it shows 24 percent year-on-year increase in electricity generation. Bear in mind that any year-on-year comparison with April of last year would render little to no meaning, given Covid circumstances. That said, there undoubtedly has been organic growth in electricity generation (and demand), as April 2021 generation numbers are the highest ever for any April.

The gradually increasing demand can also be gauged from 12-month moving average that tends to even out extreme circumstances. Electricity generation on a 12-month moving average basis at 10.7 billion units per month is also the highest ever and strengthens the assertion that economic activities are picking up.

A few analysts have raised concerns on the recently announced GDP numbers on the basis of the growth rate of electricity generation and distribution sector as encompassed in the national accounts by the PBS for the GDP computation. That shows a negative growth of a massive 23 percent year-on-year, and then comes the question as to how could the industry grow at such a brisk pace when electricity supply and distribution shrank by as much. Only that power generation numbers as released monthly by the CPPA shows the year-to-date power generation has instead increased by 6.5 percent year-on-year, and not declined in high double-digits (even if one accounts for a higher slide in gas distribution during the period).

The fact of the matter remains that GDP calculation exercise is not as simplistic as it may seem from the outside, and a look at the Pakistan Industrial Classification documents would confirm that. The Gross Value Added is not simply the result of production and price, it is much more complicated. It may well be a tad outdated, and there may be few exclusions here and there, but the value used for GDP computation is truly not the way to look at how power generation and demand has fared during a given period.

Now, back to the generation fuel cost. The fuel generation cost stayed 84 paisas lower than the reference tariff, at Rs5.77 per unit. This is a welcome development for the consumers having faced upward fuel charged adjustment for the most part of the last 12 months. It must be kept in mind that fuel cost usually deviates little in medium consumption months of March and April – as hydel share starts to pick up, and gas supply improved due to higher temperatures. The real test comes in peak summers and winters, where fuel availability has many a times caused violations of the economic merit order.

Despite improved generation mix, the fuel cost in actual terms went up by 49 percent year-on-year for 24 percent higher electricity generated. The fuel cost per unit is a whole rupee higher than the same period last year. It is a 26 percent rise in the revised reference tariffs, that will lead to negative adjustments in the monthly FCA for April 2021. This would offer a breather for consumers who recently saw the base tariffs go up by as much as Rs1.95 per unit. Since the quarterly adjustments have been delayed, negative monthly FCA would surely be welcomed by the paying consumer and would also help the government’s cause of capping inflation.

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