Local media at large, informed the nation of the power bomb; the sunami of inflation that is likely to hit the public in the days to come. They were referring to the recent decision of National Electric Power Regulatory Authority (Nepra) regarding the Fuel Charge Adjustment (FCA) for the month of August 2011, to be billed in March 2012.
Nepras decision has widely been quoted as if the power tariff had been increased by 39 percent - which is simply not the case. It has to be understood that it is the fuel adjustment component of the tariff that has been revised, which is now a regular practice carried by the authority to eliminate the price differential between generation costs and billing rates.
Power consumers have faced heavier increases in the fuel adjustment component previously, but that somehow managed to escape the ever-vigilant eyes of the populist media. The FCA for August 2011 increased by 48 percent or Re.0.99/Kwh compared to the fuel adjustment component for July 2011. This increases pales in comparison to the previous two revisions in FCA for July 2011 and June 2011, when the same component jacked up by 98 percent and 68 percent, month on month, respectively.
What is more relevant though and what has been the point missed in the frenzy is that higher than anticipated fuel adjustment points towards the abject state of the power sector in the country. Nepras document for power generation in August 2011 is a tell-tale in itself, which highlights the imbalanced energy mix, which is eventually yielding both inefficiency and higher consumer tariffs.
In referencing the power tariff, hydro electricity generation is supposed to contribute 47.6 percent of the total, but it ended up constituting 38 percent of the total. Less than optimal hydro-power generation meant added pressure on thermal based power generation, the share of which was 57 percent as against the referenced 49 percent.
Naturally, the change in mix calls for change in reference tariff and thats what Nepra did. 38 percent furnace oil based power generation proved to be the catalyst in the upward revision of the FCA for August 2011. There is light years difference between hydro, gas and furnace oil based power generation.
Hydro power was generated at a very cheap rate of 13 paisa per unit. Gas based generation was at a higher but still reasonable Rs.3.7 per unit. And then comes the party spoiler - the FO based generation, with a whooping cost of Rs.14.98 per unit. From there on, it is no rocket science to gauge why the FCA has been revised upwards.
Calls to improve the energy mix have been made from all corners but they have largely fallen upon deaf ears. A note of dissent from one of the members of the committee also highlights the issue of expensive rental power plants, inefficient IPPs and the inability of Gencos to upgrade their plants. All these are long standing issues and need to be looked upon seriously.
It is high time that dams are built, coal based power generation is started and Pakistan gradually does away with FO based power generation. The tariffs will come down drastically once the energy mix is improved. Here is to hoping that those who matter are listening.
Nepra decision: The points missed
Generation share Fuel Cost (Rs/kwh)
Reference Actual Reference Actual
Hydel 47.6% 38.4% 0.06 0.14
Coal 0.0% 0.1% 3.12
HSD 0.0% 1.5% 15.02 17.51
RFO 24.6% 35.2% 10.26 14.99
Gas 24.6% 22.1% 3.55 3.71
Nuclear 2.4% 1.9% 0.51 0.97
Import Iran 0.3% 0.2% 4.99 8.67
Mixed 0.5% 0.4% 10.50 10.00
Wind 0.0% 0.0% 9.12
Source: Nepra