Pakistan: PML-N government fails in boosting generation

load sheddingThe incumbent government headed by Mian Nawaz Sharif has failed in boosting electricity generation. Some of the pertinent observations are: 1) during first ten months of last financial year ended June 30, 2015 (10MFY15) generation both in terms of number of units produced (76.23GwH) and capacity utilization (9,500MW) remained lower as compared to the numbers available for the corresponding period a year ago, 2) a point of concern is that despite reduction in furnace oil prices, the government preferred to consume more gas, 3) limited respite was provided to consumers and 4) government continued imposing additional levies (debt surcharge, GIDC) to take advantage of prevailing oil prices.

NEPRA reduced monthly fuel adjustment relief from Rs2.62/KwH to Rs1.86/KwH by levying an Rs0.76/KwH surcharge on account of GIDC. A further probe reveals, 1) cost of furnace oil based generation remained at its lowest since generation data was made available from January’11, at Rs10.3/KwH for April’15, averaging at Rs13.1/KwH for 10MFY15, 2) gas based generation grew to 21.9% in 10MFY15 from 19.4% during in 10MFY14 and 3) HSD based generation also growing by 2.5x to 3.5%.

Going forward it is believed that relief given to consumers under the monthly fuel adjustment mechanism will taper as 1) CYTD furnace oil prices have risen by 18.6% to Rs52,038/ton, 2) additional surcharges levied on consumers to raise the consumer weighted tariff (Rs14.8/KwH) higher than the cost of generation provide room for circular debt clearance and 3) generated units are expected to remain slightly below FY14 levels (95.14GwH) while peak demand is likely to continues to climb.

Generating a total of 76.24GwH vs. 77.20GwH exhibits a decline of 1.25%YoY, with generation amounting to 9,500MW. Gas based generation grew to 21.9% from 19.4% of units generated in 10MFY14 and HSD’s share of generation jumped 2.5x from to 3.5% from 1.4%. From the cost side, HSD witnessed the steepest decline in the cost per unit generated (Rs17.8/KwH in 10MFY15 as compared to Rs22.9/KwH in 10MFY14) followed by FO based generation which experienced a fall of 21%YoY to average Rs13.1/KwH over 10MFY15.

From a holistic perspective, low input costs can help in reducing cost of generation and in in turn curtailing subsidy payment that may help in keeping circular debt in control. While the government has failed in passing out the benefit of reduction in crude oil price to consumers, it is feared that it may continue imposing additional levies (debt surcharge, GIDC) to rationalize electricity tariff and take advantage of prevailing low input prices.


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