The power regulator allowed Rs1.95 per unit on account of Fuel Charges Adjustment (FCA) for August 2021. This is comfortably the highest allowance on account of FCA in at least seven years. Expect even higher for September and October, as all imported fuel has offered little respite. A seemingly routine affair has of late become controversial, no less among Nepra members, as one of the four honorable members has continued to show dissent month after month, on the state of affairs.
August FCA to be collected in November will yield Rs40 billion over and above the reference values – Rs105 billion versus Rs65 billion referenced for September. Some of it is on account of higher electricity generated – 14 percent to be precise. All else is the fuel price impact, which exacerbates when currency depreciation is accounted for.
There is very little the authorities can do but to pass on the fuel price impact. For sure, the generation mix could have been better planned, and the imported component could have been lower in the fuel mix. But that is in the past. What the authorities can, to some degree, control is compliance and governance. The cost of inefficiency keeps adding up to the final cost that the consumer pays, with virtually no accountability.
This is not to suggest that generating, transmitting, distributing power is not tough business. It probably has the most complicated of setups, but none that justifies years and years of continued negligence. While the monthly FCA gets approved every month, it is not without strongest possible warnings from Nepra.
The dissent note with the decision states that Nepra once again failed to comply with Nepra’s directions to report the dispatch of power plants out of merit order on a daily basis. The Authority goes to the extent of stating that the repeated failure to comply warrants legal actions against the National Power Control Centre.
The CPPA reported no less than 166 instances of plants operating in violations of merit order due to system constraints in August 2021. The financial impact of these violations amounts to Rs2 billion for the month, and the cost of NTDC’s inefficiency has to be borne by the paying consumer. Similarly, the underutilization of most efficient and available power plants, due to mismanagement in procurement of relevant fuel continues to cause major deviation from reference fuel tariffs. The dissent note reads that such mismanagement cannot be passed on to the consumer. Prior adjustments are being allowed without financial and technical audits, which also raises questions.
While the bigger picture around power availability and pricing may get all the headlines – it is often the trivialities that need the most attention. Continuous negligence breeds encouragement of inefficiency, and that is what has been going around the power sector for quite some time.