It’s clearly a pattern now. For the fourth straight month, the country’s power generation fell year-on-year. In September 2022, $12.5 billion was generated on a net basis, down 8% year-on-year. Recall that power generation increased year-on-year for 22 consecutive months from June 2020 – with the reversal from June 2022. The 12-month moving average generation is at its lowest in 8 months, progressing only to 3.7%. The decline is sharper than the two previous declines seen during Covid and the economic downturn of 2019.
It will be some time before granular data becomes public, but the anecdote suggests that most of the reduction in demand comes from reduced industrial activity. LSM data for June and July gives a sufficiently early indication of what the first half of FY23 will look like. Lower electricity demand for August and September offers a glimpse of what the coming months will look like. for LSM. Please note that industrial consumption accounts for more than a quarter of all electricity demand in Pakistan.
The flooding has added another dimension to the demand scenario, as a slowdown in tubewell utilization is widely expected, which could add another percentage point to the downside. The destruction of demand has always been seen to come and it would not be easy to stop the slide, as it also coincides with a historic rise in end rates for consumers.
The authorities have pinned hopes for a better recovery in the electricity sector on additional demand. Higher tariffs pose a challenge to both demand recovery and T&D losses. Winter fuel shortages are now almost a certainty, and capacity costs will soon explode, along with reduced demand. Monthly fuel adjustments are now supposed to signify, as FY22 clearly was, an anomaly.
The reference tariffs were adjusted sharply upwards with the revision of the base tariffs. In some cases up to 100%, which obviously makes the need for an upward FPA much lower. The benchmark fuel price for September 2022, for example, is 97% higher year-on-year. The FPA requirement is peanuts. But that doesn’t mean reduced overall fares, as base fares now reflect rising benchmark fuel costs.
With winters approaching and the shortage of imported gas, heating oil will remain in the mix, even though it is the most expensive option today. Nothing has changed much in the last decade. The only change you continue to see periodically is under the guise of pricing rationalization. T&D losses continue to be painfully high, collection is declining, merit order violations are increasing, and fuel supply management is abysmal. The ingredients are the same, the result would not be different, again.