The power regulator okayed Rs2.56/unit as monthly Fuel Charges Adjustment (FCA) for June 2024– marking 16 straight months of positive adjustments. This capped the fiscal year with a cumulative FCA of a colossal Rs302 billion – or Rs2.45/unit. For context, cumulative FCA in FY23 stood at a more modest Rs126 billion, close to Re1/unit. The fact that relatively high FCAs kept coming month after month despite no significant alteration in energy commodity prices and the local currency value against the greenback –there is a need to avoid taking the same route this year.

The average reference fuel price for FY24 at Rs9.61/unit is quite like last year’s Rs9.56/unit, and only Rs17 billion apart in absolute terms. The real dampener has been a consistently significant deviation from reference generation – both in terms of actual generation and the fuel mix. In June alone, for example, the actual generation of 13 billion units was significantly lower than the 14.6 billion units envisaged in the reference generation, on which the Power Purchase Price is based to work out base tariffs.

The drop in demand has been a major contributing factor in inflating the consumer end tariffs, as record high-capacity cost component plays havoc. The economic slowdown and ever-rising tariffs have both played their due part in tanking the electricity demand – which is stuck in the past. Pakistan’s per capita electricity consumption now competes with the Sub-Sahara African countries, whereas the tariffs are rubbing shoulders with the first world.

There is also a small matter of influx of solar panels, as households and commercial entities increasingly look for rooftop solutions. The net metering policy makes it more viable for the upper-income segment to sell power back to the grid at good rates while netting the consumption off at rates lower than national average tariffs. Some solar panel import numbers are indicating that no less than two-fifths of the demand is now being met via independent rooftop solar generation.

As for the generation mix, the less said the better. Every single month in FY24 saw a massive deviation from the reference fuel mix, most noticeably in RLNG and imported coal. For instance, the June 2024 reference generation mix had RLNG slated at 8 percent or 1.2 billion units. The actual generation share was 18 percent at 2.4 billion units. This has been the story throughout the year, where LNG generation at over 20 percent was way above the referenced 6 percent share.

For imported coal – it is the other way around. Referenced at 16 percent of total generation, actual generation on imported coal was less than 5 percent. That is largely because of the government’s contractual obligation to offtake imported RLNG every month, as cargoes on long-term contracts arrive. There is no other buyer for that fuel, which means the onus falls on the power sector. Rest, as they say, is history.

Much of the same is in store for the current fiscal year, in terms of generation mix, given LNG contracts are still in place and demand resurrection is nowhere in sight. The only respite is expected to come in lieu of monthly adjustments, as FY25 PPP is much closer to ground reality – and the base tariff hike of July 2025 is expected to take care of sizeable upward monthly adjustments. That is, of course, assuming the international commodity and local currency don’t throw major surprises.