The power regulator has okayed discos’ Power purchase Price (PPP) for FY24 – which at Rs2.86 trillion is 14 percent higher than previous PPP in absolute terms. Nepra’s determination puts the average national PPP (excluding K-Electric) at Rs22.95/unit. Compared to PPP of Rs22.28/unit for previous year, this appears only marginally higher. But what observers seem to have missed is the changed denominator – as FY24’s PPP determination as reported is worked out on the basis of generated units and not sold – unlike last year’s.
Another thing that must be remembered at all times is that the PPP is not the national average tariff. The tariff determination will follow at a later stage, with inclusion of distribution margin and prior year adjustment (if required) – which typically adds 12-15 percent to the PPP. Mind you, the national average tariff will also make allowance for the notorious Transmission & Distribution (T&D) losses, which will take the average unit price much higher than what the PPP tells.
Assuming T&D allowance of 12 percent (in-line with FY23 allowance) the calculation will be worked out at 110 billion units instead of 125 billion. Throw in 12 percent in lieu of distribution margin and other charges – and the FY24 revenue requirement for discos would comfortably be north of Rs29/unit. It is baffling how the regulator continues to make unrealistic allowances for T&D losses. FY23 numbers are yet to be reported, but in light of news reports and the evidence of sharp increase in tariffs throughout the year – it will be significantly higher than the allowed 11.6 percent.
The three quarterly adjustments in FY23 so far have already led to a collection of Rs105 billion over and above the already approved revenue requirement of Rs24.82/unit. That is largely because of sharp adjustments in capacity charges, as the capacity component is indexed with the US dollar and partly because of T&D losses staying well over the allowance. With another sharp upward adjustment in tariffs, it is hard to believe how FY24 will be any different, as far as T&D losses are concerned, which will lead to high quarterly adjustments.
The capacity charges at Rs1875 billion or Rs17/unit on adjusted basis is undoubtedly a big cause of concern and belittling it based on political affiliations does little service. That said, nothing much, if at all, can be done about that – as commitments made in haste earlier have to be honored. There is at least a lesson or two to be learnt though, when negotiating IPP contracts in future.
The elephant in the room is the denominator of the electricity demand in the system. With the needle barely moving in the last year, the effect felt is much higher. With tariffs as high as today, it will continue to be a challenge to attract more usage on the grid – especially with economic growth prospects remaining dim. Both collection and T&D targets are all set to be missed for FY23 and that will create another drag on future adjustments in FY24. Reference fuel cost for FY24 is an average 25 percent lower than last year – but that is handing by a thread with the set of assumptions especially the dollar-rupee parity bordering on the ambitious side.
much-improved generation mix today has not really benefitted the consumers as Pakistan still struggles for energy affordability. It does not mean that energy availability is no more the issue. It is just that Pakistan has made significant strides from the dark days of early 2010s. But there still is forced load management even today despite spare capacity for more than half the year. Years and years of inefficient management of generation, transmission and distribution networks have ensured hundreds of billions of rupees are lost (and eventually paid for by the consumer in one way or the other) every year.
Much of the same is in store for today and years to come if a complete shake-up of how the system works is not undertaken. Letting go of discos will do for starters. Or else, you will keep having tariff increase in the guise of reform to the point where it may make more sense for some to run generators on Sui gas than to pay for power from the grid.
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