Electricity fuel price adjustments have been the talk of the town of late, with confusion aplenty. Only recently has the government offered clarity on the relief mechanism on FPA on account of June bills. The power regulator has approved the fuel price adjustment for July 2022, to be collected with September bills, at Rs4.34 per unit.
This is a big relief from June’s FPA of nearly Rs10/unit – that led to nationwide protests, compelling the government to spread the impact over next months. Now that June’s FPA will be collected in six monthly installments, an additional Rs1.6/unit will be there for consumers in the unprotected category of up to 300 units.
The government has time and again communicated that the monthly adjustments would be much lower going forward, and that is not far from the truth. The commodity prices have come off the peak for starters, even though another round of rupee depreciation has somewhat reduced the impact. Secondly, on a slightly worrying note in the larger scheme, but a relief nonetheless in terms of FPA, electricity demand growth has turned negative for the first time since Covid.
This will likely mean reduced reliance on furnace oil and HSD plants, which often serve as the savior to manage the base load in times of higher demand. RLNG prices for the next two months are also much reduced, as Pakistan opted to be content with long-term arrangements, and not attracting bids from the spot market. RLNG price is lower by 25-30 percent for August and September, from June and July 2022.
But the RLNG plants are not running full throttle – far from it, as mentioned in the dissent note that has now become a monthly feature in Nepra’s FPA determinations. The most efficient power plants with a combined efficiency of 61 percent, operated at much reduced factor during July.
Around 500 mmcfd RLNG was made available to the power sector, out of a requirement of 900 mmcfd. Much of same is in store for many a month – as power sector will continue to fall back in the pecking order as winters approach, and domestic demand increases. FO based generation will keep coming back with varying degrees. That said, Pakistan’s much increased nuclear power installed capacity should offer a breather in times of reduced demand during winters.
Power affordability will remain elusive in the near to medium-term, especially as demand growth is off the tracks once again, having only just started to pick up. There is a lot more in store on account of sizeable quarterly tariff adjustments, which will keep the consumer tariffs high, even as monthly adjustments come down.