The power regulator approved Rs2.53per unit on account of monthly Fuel Charges Adjustment (FCA) for 2021. This is by far the highest ever FCA adjustment and takes the average 1QFY22 FCA to Rs2/unit. For context, the average monthly FCA for FY21 was Rs0.5/unit. This is despite a significant upward revision of 58 percent in reference fuel tariffs from 1QFY21.
Sure enough, bulk of this cost is unavoidable as it is a direct result of skyrocketing fuel prices, particularly imported fuel, in addition to the fast depreciating currency. But there is more to it than just the global fuel price rally that is disconcerting and has been repeatedly pointed out by Nepra. This time around, the regulator sought answers from the power sector operators, and it appears the answers are far from satisfactory.
The merit order deviation has now become a norm, and the extent keeps varying without making headlines. The non-availability of RLNG as per requirement was cited as one of the reasons for operations of furnace oil and HSD power plans during the month. The National Power Control Centre (NPCC) explained that out of the requirement of 900 mmcfd, the power sector quota allotment of RLNG sat at 650 mccfd.
The Ministry of Energy (MoE) was grilled on how it plans to ever meet the 900-950 mmcfd demand of the power sector, if the SNGL quota does not go beyond 800 mmcfd at best. In a rare moment of brutal honesty, the MoE conveyed to the regulator that the supply issue will stay intact until there is another terminal in place, as government’s own gas sector allocation has a priority list, where domestic sector sits atop.
Recall that only the three big RLNG power plants nearly QATPL, HBS and Balloki have firm fuel supply contracts. The other RNLNG plants are only provided RLNG on as and when available basis, exposing to the non-supply risk. Also, in days of lower power demand the CPPA must pay the cost of the firm contracted RLNG, the delta of which eventually becomes part of the paying consumer tariff. Spot contracts then become key to supply of RLNG to plants with non-firm contracts, where the communication between petroleum and power divisions is of paramount importance and has often in the past been seen at rock bottom.
The technical constraints at the NTDC end were once again brought to notice, as time and again these constraints have been labelled as a key reason for merit order deviation. Other than the transmission evacuation issue off the more efficient power plants, the cheaper plants are situated far from load center, which brings the FO based power plant front and center, in case of high demand. While all the tariff adjustments may be necessary to keep the machine running, paying no heed to the inefficiencies that lead to higher unavoidable FCA will continue to haunt consumers.
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