With the quarterly tariff adjustment for 1QFY24 notified, consumers are all set to pay the highest per-unit price ever for January 2024. Before that, they will be paying the highest per unit price ever in December 2023, as monthly FCA at Rs3.08 per unit has been notified across consumer categories, barring lifeline consumers.
The 1QFY24 quarterly adjustment at Rs1.15 is much smaller in scale than the previous quarter’s Rs3.28/unit, but it will not be replacing the one already in field unlike previous occasions. The 1QFY24 QTA will be added on top of the existing one that is already in field till March 2024 – and take the cumulative QTA for Jan-Mar 2024 quarter to Rs 4.97/unit. With monthly FCAs staying over Rs3/unit in the last two months, largely because of revised reference fuel cost for Thar Coal Block-1 energy project – more of the same appears in store for at least another quarter, in lieu of previous adjustments (the graphs for simplicity’s sake assume FCA@Rs2/unit).
What must not be forgotten is that the last two quarterly adjustments totaling Rs5/unit have come at the back of significant upward revision in base tariffs. Revised base tariffs take into account the most recent fuel costs, exchange rates and other components for the next 12 months. A deviation as significant as this, despite a rather stable currency and subdued fuel prices – is a worrying sign.
The drop in generation volume started in 2QFY24, therefore, that is not a reason for upward adjustment for 1QFY24. This will be a bigger problem in the upcoming quarterly adjustments, as generation from the reference point for FY24 is down 10 percent in 2QFY24.A key reason why more and more deviations from reference generation points (and resultantly reference fuel costs) will be seen throughout the rest of FY24 – is the determined Power Purchase Price (PPP) for FY24, that is devoid of ground realities (see: Power tariffs: No regard for ground realities, published, September 27, 2023)
Recall that the approved PPP for FY24 incorporates no more than 6.6 billion units of electricity generated on imported RLNG. That is no more than 5 percent of the total generation share. Now consider that, in the five months of FY24 so far, RLNG-based generation has already surpassed 10.5 billion units. In fact, in 1QFY24 alone, RLNG-based generation at 7.8 billion units had crossed the reference point for entire FY24.
Given Pakistan’s long-term state-to-state LNG contracts, Pakistan was always expected to continue receiving RLNG, which will invariably be used for power generation, barring peak winter season. Why did such a weak reference point go through in the all-important PPP document that becomes the basis for the annual base tariff – is a question that needs serious answers. The capacity cost component will continue to deviate from reference generation point throughout FY24, requiring more upwards QTA revisions, whereas the need for sharper monthly FCAs will also keep arising, as reference monthly FCC are based on flawed assumptions.
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