December 2021 marked three months in a row for the monthly Fuel Charges Adjustment (FCA) to stay north of Rs3/unit. Mind you, the deviation from reference fuel tariff is despite a revised reference fuel structure that saw fuel costs go up by as much as 50 percent. There is only very little that could have been done to avoid, given how the energy commodity prices have rallied in the recent past. A better mix based on higher share from indigenous fuel surely would have helped, but this is more of a hindsight argument now, and won’t serve the purpose.
The generation mix has been aided by significant contribution from nuclear and hydel generation of late, without which, the fuel bill for power generation would have been even higher. The power generation is not without shortfalls, oversights, and technical constraints – which keep making their way in Nepra’s monthly determination. But mostly as a minority view, with no bearing on the outcome, that continues to breed inefficiency and lets it go largely unpunished.
The RLNG supply and the generation thereof continue to be concerning, as the RLNG allocation to the power sector in December at 287 mmcfd was short by over 180 mmcfd of the optimal requirement, as per the data provided by the National Power Control Centre. The argument goes that since RLNG is an imported fuel and the mismanagement has mainly stemmed from inefficient supply chain management, the cost of the same should not be passed on to the consumers.
Recall that existing Gas Supply Agreements of majority RLNG based power plants are based on as and when availability basis, curtailing Nepra’s ability to act. The RLNG supply issue during peak winter months will continue to be an issue, and the inefficiencies will continue to be passed on to the consumers, until and unless there is an additional terminal to handle RLNG. The same has been communicated by the authorities to the regulator, suggesting the risk of non-supply in days of low demand will remain high.
Those looking for a respite in monthly FCA may have to wait a little longer. As the gas supply will improve with temperatures going up, the cost side of the equation still remains considerably higher from reference fuel tariffs. Ogra has recently approved RLNG consumer end tariffs for January and February 2022, north of $13.5/mmbtu – highest ever. The Ukraine-Russia standoff has already sent Brent at 7-year high and international gas supply once again faces massive supply-side risks. The government is also set to announce revised tariff structure by the end of this month, as indicated in the IMF Staff Report. There is only one way the power tariffs are going in the near-term – up!
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