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The power regulator Nepra approved another Rs1.74/unit on account of quarterly tariff adjustments, pertaining to 4QFY24. The approved periodic adjustment amounts to Rs43.3 billion, out of Rs46.9 billion sought by power distribution companies. Unlike the previous adjustment, that was spread unevenly across the quarter, 4QFY24 adjustment returns to normal practice, with uniform adjustment across months from September to November 2023.

The 4QFY24 adjustment will replace Rs0.93/unit of QTA that lapsed in August 2024. Recall that the authorities had preponed the previous quarterly adjustment by a month, leading to higher adjustment in June, followed by lower adjustments in the subsequent two months, in order to minimize the impact of base tariff revision that came into effect from July 2024.

The 4QFY24 QTA is based on projected sales of 24.8 billion units (excluding lifeline consumers) between September and November 2024, and any deviation means it gets adjusted in the next QTA. The actual for the period slated for the previous adjustment fell short of the rather optimistic 38 billion units envisaged for the three months from June to August 2024. Much of the same seems to be in store for the latest periodic adjustment, as sales revival has been slower than anticipated. The actual sales have deviated significantly from reference consumption in the last 18 months and the trend has shown no signs of reversal. This means the capacity component of the adjustment gets adjusted on the higher side.

The ongoing decline in electricity sales is primarily driven by two factors: organic demand reduction due to higher tariffs, and the widespread shift toward distributed generation across various sectors.

In Pakistan’s single-buyer market model, where take-or-pay contracts are prevalent, any reduction in grid consumption results in higher charges for those still connected. This creates a vicious cycle, and while load shedding in commercial sectors is not a sustainable solution, continuing this practice without a strategic plan will only make electricity costs even more prohibitive, potentially leading to even more severe demand destruction.

As bills continue to rise, distribution losses have worsened in both absolute terms and relative to previous performance. One-quarter of the 4QFY24 adjustment is attributed to the impact of T&D losses. Additionally, grid demand, particularly from the industrial sector, remains weak, leading to continuous upward adjustments in capacity charges quarter after quarter.

Looking ahead, FY25 is expected to see a more moderate series of tariff adjustments, mainly due to more realistic reference base tariffs. Despite this, the tariffs remain burdensome for most consumers, and a quick rebound in demand is unlikely, meaning that periodic adjustments will persist, though at a lower rate than before.

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Builder Sep 10, 2024 02:01pm
Baseline tariff already all-time high but they can't reduce losses and theft, so will keep on putting more burden on legit consumers. Great job all parties including PD, Nepra and DISCOs!
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