It is clearly a pattern now. For the fourth month running, the country’s electricity generation has gone down year-on-year. September 2022 saw 12.5 billion generated on a net basis, down 8 percent year-on-year. Recall that electricity generation had increased year-on-year for 22 straight months starting from June 2020 – with the reversal starting in June 2022. The 12-month moving average generation is at its lowest in 8 months, growing only at 3.7 percent. The dip is sharper than the previous two dips witnessed during Covid and the 2019 economic slowdown.
It will be a while before granular data is made public, but anecdote suggests the bulk of the demand reduction has come from reduced industrial activity. LSM data for June and July give enough early indication of what the first half of FY23 will look like. The drop in electricity demand for August and September offers a glimpse into what the upcoming months for LSM look like. Mind you, industrial consumption accounts for more than a quarter of all electricity demand in Pakistan.
Floods have thrown another dimension to the demand scenario, as a slowdown in tubewell usage is widely expected, which could add another percentage point to the downside. The demand destruction was always seen coming and would not be an easy task to arrest the slide, as it also coincides with a historic rise in consumer end tariffs.
The authorities have pinned the hopes of better recovery in the power sector on incremental demand. Higher tariffs pose a challenge to both demand recovery and T&D losses. Fuel shortages in winter are now almost a certainty, and capacity costs will go through the roof pretty soon, with reduced demand. The monthly fuel adjustments have now expectedly reverted to mean, as FY22 was clearly, an anomaly.
The reference tariffs have been adjusted upwards significantly with the revision in base tariffs. In some cases, as high as 100 percent, which obviously makes the need for upward FPA much smaller. The reference fuel tariff for September 2022, for instance, is 97 percent higher year-on-year. The FPA requirement is peanuts. But that does not mean reduced overall tariffs, as base tariffs now reflect the increased reference fuel costs.
With winters approaching, and imported gas in short supply, furnace oil will remain in the mix, even if it is the priciest option today. Nothing much has changed in the past decade or so. The only change you keep seeing periodically is in the guise of tariff rationalization. The T&D losses continue to be painfully high, collection going down, merit order violations are up, and fuel supply management is abysmal. The ingredients are the same, the outcome would be nothing different, yet again.
Comments
Comments are closed.