Fuel Cost Adjustment: Over Rs280bn additional burden to be passed on to consumers in three months

ISLAMABAD: The government is to pass additional financial burden of over Rs 280 billion to the consumers as Fuel Cost Adjustment (FCA) in the next three months i.e. May and June and July 2022 in Discos due to unprecedented rise in fuel prices in the international market, along with load shedding, well informed sources in NEPRA told Business Recorder.

The sources said, financial impact of FCA in February 2022 was Rs 38 billion, in March Rs 32 billion, Rs 52 billion in April, Rs 88 billion in May, Rs 95 billion in June and Rs 102 billion in July.

The sources said, in February FCA was 4.94 per unit, Rs 3.16 per unit in March, Rs 4.05 per unit in May, Rs 6.32 per unit in May, Rs 6.22 per unit in June and Rs 6.05 per unit in July 2022.

Power sector is presently facing liquidity crisis which has worsened due to rise in fuel prices in the international market. In this scenario credit lines of IPPs have been exhausted to procure fuel and they are pressing hard for clearance of the outstanding receivables. The payables position as on April 30, 2022 for IPPs was Rs 1.612 trillion.

“This is alarming situation and IPPs are pressing hard to clear their outstanding receivables for maintaining fuel supply chain to fulfil operational requirement,” sources told this correspondent.

Prices of fuels have increased significantly in recent months as compared to the notified reference rates. The price of Brent trade has exceeded $120/barrel as compared to $54/ barrel last year. Similarly, the price of imported coal has surpassed $300/MT (landed cost over $500/MT as compared to $80/MT last year).

April FCA: NEPRA approves Rs3.99 per unit hike in electricity tariff

The price of furnace oil was 165,000 per ton in April and Rs 170,000 per ton in May, June and July 2022, as compared to notified reference price of Rs 54,484 per unit showing an increase of 150 percent in April and 127 per cent in remaining three months.

The price of RLNG was Rs 3,073 per MMTBU in April and 2,805 per MMBTU in May, Rs 2702 per MMBTU in June and July 2022 against notified reference price of Rs 1,234 per MMTBU.

The price of coal (HSR) was 45,270 per ton in March rose to Rs 76,765 MMBTU in April, Rs 74,737 per ton in May and will be Rs 72,542 per MMTBU in June and July 2022, showing upto 535 percent increase in prices.

Coal price (PQ) was Rs 28,848 per ton in February increased to 34,292 per ton in March, Rs 72,085 per ton in April, Rs 70,057 per unit in May and Rs 67,862 per ton in June and July 2022, posting an increase of upto 150 percent.

Authorities fear that massive increase in tariff (FCA+ QTA-rebasing to the tune of Rs 10 per unit) from next fiscal will put substantial financial burden on the consumers, which can create law and order situation in the country.

The country’s circular debt is likely to touch Rs 3 trillion by June 30, 2022, nearly Rs 500 billion addition after ouster of PTI government through no confidence motion, mainly due to non-clearance of over Rs 350 billion by K-Electric and three months’ delay in recovery of FCA from consumers.

In addition, fuel cost adjustment collection from consumers takes approximately two months. This has created cash flow constraints for CPPA-G to fulfil the operational needs of IPPs for maintaining smooth fuel supply chain during this summer.

On May 28, 2022, Power Division shared financial position of power sector with the ECC and sought approval of Rs 50 billion as supplementary grant for the IPPs i.e. coal, maintaining that Federal Cabinet in its meeting held on May 10, 2022, was also apprised with regards to immediate cash injection of Rs 100 billion to avoid load management during this summer.

Power Division argued that given the fuel supply chain requirements, particularly the payment requirement for coal in transit, it is imperative that immediate cash may be released to the sector from available fiscal space. Currently, more than Rs70 billion coal is at port in transit and to get it cleared Rs 20 billion will be arranged from consumers collections, however, a supplementary grant of Rs50 billion under the head of equity of power Distribution Companies (Discos) is required to meet minimum possible demand of coal supply.

The sources said financial requirement of coal inventory in transit to be received in June 2022 will be as follows: (i) Huaneng Shandong Ruyi Energy (Pvt) Ltd 220,000 tons (financial requirement $101.65 million); (ii) China Power Hub Generation Company, 378,333 tons (financial requirement $16501 million); and (iii) Lucky Electric Power Company Limited, 330,000 tons (financial requirement $32.81 million). The total required financial requirement of three power plants is $300.37 (Rs 59 billion).

Power Division, in its proposal requested Supplementary Grant of Rs50 billion during current financial year i.e. FY22 under the Head Investment A014 under Power Division Demand No.034 (B 8011-Payment to IPPS) as investment in Discos to meet the requirement of power sector and in order to avoid the system failure in the country.

On May 28, 2022, ECC approved the proposal on the summary of Power Division with the caveat that requisite funding would be provided by the Finance Division against future subsidy claim as Supplementary Grant whereas Cabinet on May 31, 2022 ratified the decision.

The sources said KE’s FCA will be Rs7 per unit in May, June and July 2022 due to higher fuel prices in the international market.

Copyright Business Recorder, 2022