Of Rs52 billion sought by the power distribution companies on account of the quarterly tariff adjustments for 3QFY24, the regulator has allowed Rs46.6 billion. There is some improvisation in the collection mechanism this time around, as the adjusted amount has been spread over three months, and not on a uniform basis.
What stands out is the preponement of the Quarterly Tariff Adjustment (QTA) collection by one month. Recall that the existing QTA of Rs2.74/unit has not lapsed yet and ends in June 2024. The QTA for 3QFY24 slates Rs1.9/unit to be collected in June, while Rs0.93/unit to be collected in July and August. This means the QTA for June would reach Rs4.6/unit and should lead to higher month-month CPI reading for June, if the PBS doesn’t fail to capture the change.
The upcoming base tariff revision in July 2024, which could be close to Rs5/unit, seems to be the reason behind frontloading the QTA in June. With June QTA now at Rs4.6/unit, the impact on the overall tariff would be much curtailed even after base tariff revision, as QTA for July and August is significantly reduced at Rs0.93/unit. Mind you, the QTA is based on projected sales of 38 billion units (excluding lifeline consumers) between June and August 2024, and any deviation means it gets adjusted in the next QTA.
And sales from the national grid have been a big problem of late, with almost every other disco reporting a significant decline across categories. The core reason for 3QFY24 QTA lies in a significant deviation between actual and reference consumption, as sales at 17.6 billion units during January to March stayed 10 percent lower than the reference consumption for the period.
FESCO reported a decline of 11 percent in sales, despite an 18 percent increase in industrial demand, which is at odds with the nationwide trend. GEPCO reported a near 5 percent decline in industrial sales, whereas LESCO reported a massive 15 percent slump in demand from industries. The Multan distribution company saw its B3 industrial sales go down by a massive 26 percent, while PESCO witnessed a slump of 17 percent.
At the heart of the ongoing decline in sales, besides organic demand destruction owing to increased tariffs, there is the widespread adoption of distributed generation from all categories. The Ministry puts the number on net metering generation at 2,000 MW by June end, 2024, and singles out solar generation in the agriculture sector as the chief reason behind the demand drop. The Ministry has told the regulator that studies are being conducted to ensure system stability is not hampered and a decision in this regard is imminent,
And then there is growing load shedding that is further distorting the sales equation, leading to higher adjustments. The government is adamant that commercial-based load shedding is going to continue much to the displeasure of the regulator, that insists on amending the laws, as the current set of laws does not allow revenue-based load shedding.
The government’s position is that it cannot afford to let the T&D losses slip further by allowing uninterrupted supply to high-loss feeders. In a single-buyer market model such as Pakistan’s with take-or-pay contracts in abundance, taking away a single unit off the grid leads to higher charges for those who are paying. It is a vicious cycle, but clearly continuing with commercial load shedding without a plan in sight is not the answer and will continue making electricity unaffordable to the point of being unviable and the demand destruction as a result could be too catastrophic than the urge to mask T&D losses by such means.
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