The cost of electricity is increasing to exuberant levels. It is increasingly becoming unaffordable for household and unviable for businesses. The reasons for recent increase are revisions in base tariffs and higher fuel cost. Moreover, the imported fuel bill is putting the external account under pressure. At this juncture, all the efforts should be deployed to have the most efficient use of energy resources – especially the indigenous sources.
One of the main problems in the energy sector is inefficient allocation of energy sources through pricing and policy anomalies. Over the last decade, when the power loadshedding was high, industries moved towards captive power production – on furnace oil, diesel, and gas. Later, when new capacities are added on imported fuel, no heed was paid to moving the captive plants back to the system. Had that happened, the fuel cost today could have been much lower – especially for inhabitants of Karachi.
According to some calculations, fuel cost adjustment (FCA) for K-electric consumers could have been lowered by Rs8/kwh in June had the KE gotten 130 mmcfd of domestic gas at the price at which is being provided to domestic connections. The inefficient allocation is hurting the consumers. And the country’s precious hydrocarbon resources are being used inefficiently.
In the recent months, cost of local gas for power production is around one-fourth of the imported RLNG. The cost is a pass-through item, and eventually the consumer has to pay. The cost of production per unit on RLNG was Rs28.3/kwh in July 22 versus Rs10/unit for domestic gas. And higher domestic gas has been consumed by non-power consumers.
The efficiency of IPPs is generally higher than captive power plants. Newer plants – whether in the NTDC system or KE, have over 50 percent efficiency while for captive it is around 30 percent. Successive governments (incumbents as well as the last PTI’s) attempted to shift industries using captive to grid electricity. But failed. The industrialist lobby for their interest and win.
In some cases, industrial captive consumers have co-gen facilities where the efficiencies are better. For them, it is fine to rely on captive. But for others it is a wastage of precious resource. When the government tries to find out who is efficient and who is not, industrial players (especially in Sindh) go to courts and obtain stay order. And the government lacks the will to force its writ. The question is who are the industries that are on captive plants and why the government is supporting them. Are there any vested interests?
Whatever the case, now the water has reached nose level, and there is no room for the government to let the status quo continue. There must be a strict policy of using the energy resource for the most efficient purposes. The impact may not be huge for the NTDC system as the system gas is running short in the SNGPL network. However, given better supply situation in the SSGC system, the benefit could be higher for KE consumers.
According to news reports, 200 mmcfd gas is supplied to captive consumers in the SSGC network at around one-fourth rate of current LNG rates. KE is demanding 130 mmcfd, and that could lower the cost of production and in turn lower the effective tariffs being charged to the consumers.
KE’s new RLNG plant is of 59 percent efficiency. Half of newly installed capacity is already online and rest is coming online soon too. Then its existing gas plants have efficiencies of 43-49 percent. It is completely rationale to divert domestic gas to KE for better use. And let the industry to buy energy from KE. Moreover, gas under domestic use – for pace heating and geysers, should be discouraged through pricing and nudged towards electric solutions.
The question is whether KE would have enough capacity to cater to the additional consumers. The answer is yes. All it needs is grid connectivity. Some industrial players already have it. Others should do it too. Fixing the pricing is the key. Moreover, supply of domestic gas is falling and its provisioning to industries would be limited this winter. Already, around 300 industrial units have requested KE for new connections. Government should inform through policy instruments and administrative measures for the rest tofollow. The time for dilly dallyis over. Hard and right decisions should be taken promptly.