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Electricity demand has moved a needle of late, recording highest ever yearly generation of 130 billion units in FY21. The 7 percent year-on-year increase in generation is not anything to write home about, especially considering it comes at the back of a low base from a Covid-ridden 4QFY20. Case in point is a modest 2.5 percent year-on-year increase in gross power generation when compared for Jul-Feb, before Covid hit in March.

Also bear in mind that the authorities have undertaken various measures to encourage power demand, especially from industrial users. Most of the increase has been observed under the new incentive structure that abolished the off-peak tariff structures. That is a healthy sign and indicative of demand revival from the industries.

But another caveat comes in play, as government’s phased withdrawal of captive power generation also means more demand for the grid. While, this is financially healthy for the power sector, as good industrial consumers on the grid means timely and full payment, it must not be confused for higher overall power demand from the industrial sector. The assertion also gets validated by the central bank’s continued observations on the economy still operating below the peak, showing an output gap.

All said, the 12-month moving average monthly power generation at 10.5 billion units is easily the highest ever, and sows good promise to keep growing at a healthy pace. The fuel component charges for FY21 at Rs653 billion in per unit terms are almost identical to FY20’s at Rs5 per unit. This is despite a significantly altered, not necessarily improved, power generation mix.

Hydel generation stayed almost static at 39 billion units – going down 200 basis points in terms of generation share. Furnace oil-based generation registered the highest increase in percentage terms, making a comeback to nearly 5 percent. In absolute terms, the increased contribution from FO was only second to LNG’s at 2 billion additional units. The reasons are plenty. From low LNG availability to high peak demand, and from low hydel generation to inability to run LNG plants at full throttle.

FO fuel bill at Rs81 billion for the year was higher by 60 percent year-on-year. More than half of it is a result of inefficiency, complacency, and blatant disregard to the regulator’s endless reminders to mend things. In the larger scheme of things, Rs81 billion may not be the most decisive factor, but this is exactly where it keeps on growing year after year. The regulator has not been provided a satisfactory answer by the system operators on how FO keeps coming back, month after month.

Now that the reference fuel tariffs are a lot higher than previous year, the need for upwards adjustment in lieu of monthly fuel charges will not arise as often. Hydel availability continues to be the key determinant in how the power generation mix will shape up going forward. Coal has made big strides and has taken over LNG as the single largest thermal contributor. Natural gas has continued to dwindle, and the share is down to multi-year low of 11 percent. It will keep going down, given Pakistan’s depleting natural gas reserves.

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