Power Generation: An Ongoing Costly Business – BR Research


Electricity generation from Pakistan’s power grid in FY22, at 139 billion units, was 10% higher year-over-year – and comfortably the highest of any annual figure. There are early signs of a general slowdown in economic activity in the June generation, which, at 13.5 billion units, was down 4% year-on-year. This is the first incidence of negative year-on-year growth since the peak days of Covid in May 2020.

In terms of production mix, the main baseload contributors, natural gas, imported LNG and coal, produced production figures almost in line with last year. The contribution from hydel sources fell to 25%, compared to an average of 38% over 5 years. The burden of the 10% increase in production fell to fuel oil – the share rising from 5% last year to 9.2% – production more than doubled to 13 billion units.

On the positive side, the largest increase came from nuclear sources, with the share rising from 8% last year to 13%, generating an additional 7 billion units compared to last year. Generating 10% more units of electricity costs 111% more year-over-year in fuel costs. That’s how bad things got – as the global commodity super cycle, particularly in the second half, took its toll.

The depreciation of the rupee also played its part in the increase in fuel costs – which rose from 5.2 rupees per unit in FY21 to 10.1 rupees per unit in FY22. the second month in a row, the total production fuel cost reached $1 billion, led by RLNG, constituting half of the fuel cost with a quarter of total production. Remember that the government found itself between a rock and a hard place on RLNG imports. In the face of mounting criticism over long load shedding hours, RLNG imports were staged at record highs, inflating the fuel bill. Power generation from RLNG cost 28.3 rupees per unit in June – the highest on record.

The fuel charge adjustment sought for June 2022 amounts to a staggering Rs 10 per unit – as the production cost of Rs 15.84 per unit far exceeds the benchmark fuel cost of Rs 5.93 /unity. The average monthly FCA upside during FY22 stood at Rs 4.6 per unit, which contrasts sharply with the 3-year average monthly FCA requirement of Rs 0.5 per unit in FY19 in FY21.

In the future, it will always be difficult to keep fuel costs under control. Even if commodity prices reverse significantly, the currency depreciation in the past three months alone will keep fuel costs above benchmark rates for the foreseeable future. The recent loss of production from the Guddu power station and the problems with Neelum Jehlum will only make matters worse.

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