Electricity consumers will have it tough in FY23. The power system regulator notified an upward adjustment of Rs9.9/unit in lieu of Fuel Charges Adjustment for June 2022, to be collected in August 2022. The fuel cost in June 2022 has been calculated at Rs213 billion of Rs15.8/unit – over the reference fuel cost of Rs5.93 per unit. The resultant FCA is easily the highest-ever, beating FY22 average of Rs3.9/unit by some distance.
In all fairness, there was little choice to arrest the trend. Energy commodities were seen trading at multiyear highs and Pakistan’s energy generation mix is such that the impact will always be felt hard whenever prices move beyond the historic range. The reference fuel pricing gets a lot of flak for supposedly being on an unrealistically low side. That is not entirely true, as 4-year average monthly FCA has only been Rs0.6/unit – with the maximum monthly adjustment of Rs1.8/unit.
The commodity super cycle is not something that one accounts for in base tariffs. This is precisely why the FCA mechanism is in place to pass on any deviation from reference to keep the system running uninterrupted. Moving forward, FCA requirement should come down to the historic lows or thereabouts – given substantial upward revision in reference fuel cost in the recently revised Power Purchase Price announced with the revised base tariff for FY23.
The revised reference fuel price at Rs10/unit is at par with actual fuel cost for FY22. With energy prices expected to average lower in the next 12 months, this should suffice with minimal need of upward adjustments, barring extremities. That said, the system continues to bleed with inefficiencies that have not been stemmed in over a decade under various government. Merit order violations, inability to procure fuel on timely basis, losses on account of inability to evacuate power from more efficient plants, and overreliance on imported fuel for base load, are areas that continue to be brushed aside, whilst the focus remain on revenue and revenue measures alone.
July FCA promises to be much lower as the inability to successfully bid for LNG at spot rates led to significantly reduced RLNG cost month-on-month. But for the paying consumer, it will be a while before it feels like a respite. Revised base tariff that is already in effect, will hit the consumers hard as FCA collections for July and August are on extremely high side. The base tariff itself is based on unrealistic T&D losses’ assumptions – that would eventually feed into consumer end tariff with quarterly adjustments.
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