The worst fears are coming true. When the electricity tariff rebasing exercise was carried out in July 2023, it was feared it would have a telling impact on demand. It took a couple of months for the effect to kick in. Electricity generation for two months running has now dipped 10 percent year-on-year. On year-to-date basis, total generation for Jul-Nov 2023 is up only 1.6 percent. Mind you, this is coming at the back of an abysmal FY23 – where monthly generation stayed negative for 13 straight months.For context, power generation in November five years ago in 2018 was higher than the 7.28 billion units in November 2023.
The heat is being felt across consumer categories, as expected. All Pakistan Textile Manufacturers Association (APTMA) for instance, has reported a 37 percent year-on-year fall in grid electricity consumption for October 2023. Granted, the actual power consumption would not have fallen by as much, as captive generation is believed to be rising.
What is most worrying is the continued sharp rise in fuel charges component in the last two months. November 2023 FCA adjustment sought at Rs4.66 is the highest in 16 months. Bulk of the FCC adjustment for October and November pertains to the authority’s decision on account of energy charges for Thar Coal Block-1 (TCB-1) power generation company. The post COD energy charges have been revised upwards – by up to three times over the previous reference tariff component of June 2016. The variable and fixed fuel cost component for TCB-1 for six months from February 2023 to July 2023 has been revised upwards from Rs3.49/unit to nearly Rs10/unit.
A little over Rs36 billion have been sought in lieu of previous adjustment in the last two FCA petitions – contributing significantly to the deviation from monthly reference fuel charges. The adjustments will keep coming for many more months and will likely keep FCA elevated, regardless of improvement in generation fuel mix and decline in international commodity prices. Of Rs68 billion in fuel charges for November 2023, Rs11 billion (Oct 2023: Rs25 bn) are on account of previous adjustment on TCB-1 revised reference fixed and variable cost components.
More expensive LNG is lined up for winters and should RLNG based generation share remain near the historic share for December and January – more sharp upward adjustment is in store. Quarterly adjustments also continue to be on the higher side, as demand dwindles. For the quarter beginning January 2024, another Rs1.15/unit will be added on top of Rs3.28/unit already in the field till March 2024. No wonder the circular debt flow has not been stemmed and is far from the ceiling allowed by the IMF on power arrear buildup. It won’t be smooth sailing at the second review of the ongoing IMF SBA – as the end-December target has been missed by a mile.