Another LNG terminal is operational in Pakistan. Expect these winters to be largely load shedding free, even in Punjab. This is laudable. The Prime Minister has shown a special liking for imported gas. Even with all the controversies surrounding LNG, and the arguable lack of transparency at many fronts, the pace at which things have moved on is commendable.
Power plants have been and are being converted to LNG from furnace oil. This is another laudable step. That said, the path must be tread with care, as the inefficient old power plants could still be a drag on the system, especially in terms of capacity payments. So, while the promise of no power load shedding seems very likely to be met, the same cannot be said of the price at which the power will be sold to consumers.
Surely, lesser dependence on diesel and furnace oil based power generation would mean reduced cost of generation for almost one-third of total generation. That said, Pakistan has not struck the smartest of LNG prices with respect to the long term contract with Qatar. But there will be savings nonetheless, at least on account of fuel price component of the tariff.
Worryingly, the tariffs have not come down in the last many years, despite a massive increase when the government took over in , and also despite the circular debt clearance of Rs480 billion. The fuel mix has also changed for the better over the years, and is likely to be much improved in the years to come. But will all of it translate into more affordable power is the next big question, and from the looks of it, chances of proportionate reduction in tariffs appear minimal.
The recent example of a massive increase in hydel tariff for Wapda from Rs4 per unit to Rs7.4 per unit, is a case in point. The increase amounts to almost 80 percent, as long due arrears to provinces have to be paid and borne by consumers. Mind you, hydel generation remains the cheapest source, and an increase of such magnitude yet to be notified is going to disturb the weighted average tariff structure for the worse.
It all goes back to the disturbing performance of distribution companies, as they continue to miss recovery targets, and arrears keep on accumulating. There is little to suggest things have improved by a great degree on this front. The circular debt is already touching Rs700 billion. Any sizeable increase in tariff would mean more pressure on recoveries and higher losses.
Transmission continues to be the weak link. All this could add up to the government ending up paying billions in lieu of capacity payments. The added generation must not be too costly, as it could undo all the gains. Improved energy mix must translate into lower tariffs, or else all this would end in futility.
Comments
Comments are closed.