Power generation in June 2024 at 13 billion units stayed lower 2 percent year-on-year–and so did the FY24 net generation at 123 billion units. June’s generation is close to that of June 2020 when COVID-related restrictions were still in place and economic activities were near a standstill. The fiscal year generation is the lowest in four years. All this while the system’s capacity to generate has grown at a rapid pace. The resultant mess in the form of increased tariffs is for everyone to see.

Demand destruction has been witnessed across categories despite FY24, on average, being warmer than last year – and the last few months being the warmest in decades. Tariffs are the most obvious explanation and the recent surge in solar systems owing to a lopsided net metering regime has put further pressure on grid demand. The 12-month moving average power generation at 10.2 billion units is the lowest in three years. Pakistan’s average consumption per connection is now amongst the lowest in the world, standing shoulder to shoulder with Sub-Saharan Africa, whilst the tariffs are closer to that of the developed world.

The fuel cost of generation in FY24 was overrun by a colossal Rs297 billion or Rs2.42/unit – higher in both absolute and relative terms than FY23 despite a remarkably resilient currency and no significant deviation in raw material fuel prices versus the reference costs. The core reason for deviation was an unrealistic reference Power Purchase Price (PPP) that paid no heed to the ground realities. RLNG generation, which was referenced at only 6 billion units for FY24 stood at nearly 24 billion units – owing to contractual obligations – contributing the most to fuel charges deviation from reference tariffs.

Similarly, coal-based generation stayed much lower than envisaged despite a lower marginal tariff than RLNG. That is largely because RLNG off-take had to be ensured at all times, given there are no more takers of imported gas other than the power sector – further worsening the fuel charges.

That said, FY25 promises to be a much smoother ride in terms of monthly fuel and periodic adjustments – largely because the FY25 reference tariffs are based on much-improved assumptions, closer to ground reality. The hydel generation will remain key to cost deviations, and a speedy resumption of closed plants could further improve the situation, especially since thermal-based generation continues to remain costly.