Monthly FCA: No respite

For the second month running, monthly Fuel Charges Adjustment (FCA) on power tariffs was in excess of Rs4.3 per unit. Previous high before October 2021 adjustment was Rs2.5 per unit. Such has been the magnitude of deviation from reference fuel tariffs. Bulk of it is due to no fault of the government (unless you bring in hindsight) as global fuel prices have wreaked havoc of late.

But not all of it was unavoidable. A detailed dissent note in Nepra’s monthly FCA determination notes that RLNG imports could have been better handles, terming it mainly a management issue, and that the impact arising from sheer mismanagement should not be passed on to the consumers. Recall that RLNG allocation to the power sector at 375 mmcfd was lower by nearly 100 mmcfd from generated demand, as per the data submitted by the National Power Control Centre.

The regulator, in February 2021, through one of its determinations had remarked that “non-operation of efficient power plants due to non-availability of RLNG shall be considered as a constraint and no deduction be made in monthly FCA on this account”. Mind you, the responsibility for making RLNG available rests with the federal government, but existing GSAs of power producers are based on “as and when” availability basis- restricting Nepra’s ability to take any action.

It is increasingly clear that majority of Nepra members are of the considered view that misgovernance and inefficiencies relating to availability of RLNG will continue to be shifted to electricity consumers. RLNG constraints will prevail unless there is another terminal to handle additional RLNG, as communicated by the government to the regulator earlier. The gas supply contracts also increase the risk of non-supply, and in days of low demand, the firm-contracted gas supply is added back to the power tariff.

International commodity prices have shown no signs of receding, and the monthly fuel adjustments could well continue to be on the higher side for longer than earlier anticipated. The upward adjustments are being made to an already revised reference fuel tariffs from last year – which has been increased by 50 percent. And if you are a domestic electricity consumer, brace yourself for more adjustments in tariff as the retargeting of power subsidies is going to enter its second phase soon – which will lead to reduction in cross subsidies, and more importantly an end to the previous one-slab benefit. More on that later.