July 2021 power generation was at a record high at over 15 billion units. The resultant record high fuel bill comes as little surprise, specially when international oil prices were on the surge. The regulator allowed the monthly Fuel Charges Adjustment for July to the tune of Rs1.37 per unit – very close to what the Central Power Purchasing Agency had asked for – as there were few disallowances.
It should be a non-event by now, being a routine procedure, that simply takes into account the fuel burnt for generating power, and the regulator after making certain disallowances, decides the monthly FCA in light of the monthly reference fuel prices. What has also become routine is the authorities’ continued negligence and disregard of Nepra’s rather straightforward instructions of providing data and justification of merit order violation and the financial impact thereof, in a specified format.
Month after month, Nepra notices the failure of CPPA and NPCC to comply with the regulator’s directions – only for it to provisionally allow FCA. It has been 15 months and running. And nothing has changed. Every time one member has continued to show dissent – often not signing off the FCA allowance. The objections find a way in the order and life goes on.
While this may certainly not be the biggest problem facing Pakistan’s power sector, it is by no means trivial. The financial implications of repeated violations of economic merit order are not fully known as system operators have failed to comply with orders repeatedly. The implication could be big or small – but the fact that the system operators can get away for 15 straight months without facing any consequences sets a bad precedence.
The nature of the job at hand is such that Nepra has little option but to consider the greater interest of the sector’s overall financial health. The financial side of the power sector already runs in arrears if hundreds of billions and should Nepra decide to withhold monthly FCAs on these violations, the consequences could be dire. And that is exactly where the system operators find refuge in. The strategic importance becomes the grounds for violation and complacency. This must stop. As LNG crisis deepens and furnace oil generation makes a comeback, the system operators will have more explanations to make as merit order gets trickier. Here is hoping the rules do not continue to be bent.