The power tariffs on account of Fuel Charges Adjustment (FCA) for September 2019 have been revised upwards by Rs1.83 per unit. This is roughly a 20 percent increase to the base tariff for average domestic consumers. The monthly adjustment is likely to be made in the electricity bills for December 2019. From how things have shaped up of late, it increasingly appears the monthly fuel price will continue to be adjusted on the higher side.
September FCA decision marks the third consecutive month where tariffs have been adjusted upwards by a least Rs1.66 per unit. This is the first such instance ever since the FCA has been in place that adjustments to this tune have to be made for three straight months. It could have been worse, had Nepra not disallowed certain costs related to generation, especially with respect to furnace oil cost.
Recall that Nepra had been requested to increase the tariffs on account of September FCA by Rs2.98/unit by the Central Power Purchasing Agency (read: More (and expensive) power, published October 24, 2019). Nepra has excluded half the cost of furnace oil based power generation for September 2019, which may well be considered in the future FCA, should the CPPA provide relevant and satisfactory response.
September 2019 had witnessed the highest furnace oil bill in eight months, as the merit order went haywire, for the umpteenth time. The demand is going to drastically slowdown from October 2019 onwards, owing to lower temperatures. This could put more pressure on the merit order, as a number of more inefficient plants would be facing zero production. It remains to be seen how the authorities plan to tackle the situation that is brewing.
In terms of impact ton CPI, the recently released inflations numbers show a 10.4 percent year-on-year increase in electricity tariffs. With a significant 4.5 percent weight in urban CPI, expect the increase to be even higher for November and December – as the monthly FCA’s are on the higher side, and the FCA’s for the same period last year are on a much lower side. Electricity CPI could well be up by 20 percent for November and December.
And this is without factoring the upcoming revision in base tariff on account of FY19, which is part of IMF’s structural benchmarks (which was conveniently missed). Barring January 2019, where the FCA was on the higher side, expect monthly FCAs to be significantly higher year-on-year, translating into higher energy inflation.
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