Pakistan’s power demand is doing alright. Having gone down year-on-year for five months straight till April 2019 – last four months have seen a slight up tick in electricity demand. Electricity generation in August 2019 clocked in north of 14 billion units – second month in a row, which is a first. Much improved power generation mix also means that the transmission losses have come down.
The most pleasant surprise came from hydel generation, where 5.67 billion units were generated – an all-time, beating the previous high by a massive billion units. The 40 percent share in power generation is also the highest in recallable memory, and Pakistan would not mind the trend to persist longer.
Now, better mix, with such massive contribution from hydel would generally mean much reduced cost of generation. Right? Well, in absolute terms, yes. But in actual terms of reference prices, a big no. The reference fuel price for August 2019 was set at Rs3.2 per unit, whereas the actual average fuel price came in at Rs5.07 per unit. This simply means an increase of Rs1.86 per unit to the final consumer tariff, which in the case of domestic consumer – would be an increase of around 20-25 percent.
This is the second time in as many months, where the fuel price component has deviated significantly from reference price July 2019 fuel component price was also adjusted upwards to the tune of Rs1.9 per unit. These numbers are going to reflect in the CPI calculations from now on, and expect the electricity related inflation on the higher side. Don’t forget, other than the monthly fuel price adjustment, the electricity prices have also undergone changes with respect to quarterly adjustments, which is also an increase of up to Rs2/unit, added for another year.
Bear in mind, the fuel price component is showing massive deviation from reference prices, despite relatively stable international oil prices. Should the global oil crisis go any deeper, it could have repercussions on price at home, as RLNG is now a major component of the power mix, and its price is indexed to that of Brent.
The peak demand season is nearing its end and the demand will taper off from October onwards and remain under 10 billion units a month till at least April 2020. The real challenge would be honoring the lopsided take or pay contracts, and the merit order may get compromised in the process. Capacity payments are already slated to touch Rs1000 billion in FY20. Budgeted subsidy does not have much room for alteration. There will be ample power this year and ahead – but it won’t be cheap.