K-Electric has sought a reduction of Rs1.798 per unit in power tariff on account of fuel cost adjustment (FCA) for December 2021.

According to a petition submitted by K-Electric, a private power utility serving consumers in Karachi, the decrease in tariff will provide a relief of Rs2.106 billion to the company’s consumers.

The National Electric Power Regulatory Authority (Nepra) will hold public hearing on the K-Electric’s petition on February 2, 2022.

Separately, the Central Power Purchasing Agency-Guarantee (CPPA-G) has sought an increase of Rs3.12 per unit in electricity tariff on account of FCA for December 2021 on behalf of power distribution companies.

However, a controversy has emerged over the use of expensive furnace oil and high-speed diesel in power generation.

It is interesting to note that oil refineries are calling for consuming furnace oil in power plants, which is cheaper compared to high-speed diesel.

However, power producers are not willing to take furnace oil supplies, leading to the shutdown of Pakistan Refinery Limited (PRL) while other refineries have curtailed their operations.

On the other hand, power plants have continued to consume high-speed diesel in violation of economic merit order. According to the merit order, the power plants are bound to consume cheaper fuels first before utilising the expensive fuels.

According to the oil refining industry, the cost of furnace oil was calculated at Rs80 to Rs85 per litre and that of high-speed diesel was Rs145 per litre in December 2021.

However, in a petition submitted to Nepra, the CPPA-G put the cost of electricity generated through high-speed diesel at Rs14.08 per unit whereas furnace oil-based electricity cost Rs22.24 per unit.

Their share in total electricity production was minuscule. High-speed diesel-based electricity had only 2.84% share while furnace oil-based electricity contributed 4% to the overall generation.

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Meanwhile, the share of hydel power generation dropped to 20.04% in the wake of a slowdown in water releases from dams in winter.

Coal-powered electricity contributed 23.8% to the overall power production at a cost of Rs13.3 per unit.

The cost of electricity generation through coal stood high in the face of a spike in coal prices. Cost of coal jumped across the world, which led to the shutdown of half of power plants in India.

Pakistan has set up imported coal-based power plants in Sahiwal and Karachi and variation in coal prices impacts the generation of electricity by these plants.

The contribution of domestically produced gas to electricity generation came in at 13.77%, costing Rs7.79 per unit.

The share of local gas in electricity generation dropped as domestic consumers, which featured in the first category of economic merit order, turned major users of the fuel in winter months.

Even expensive liquefied natural gas (LNG) was also diverted to the domestic consumers to overcome the gas crisis. Owing to this policy, public gas utilities have been trapped in a circular debt of billions of rupees.

The share of imported LNG in electricity generation stood at 13.5% at the highest cost of Rs17.8 per unit because of expensive cargoes.

Pakistan LNG Limited (PLL) failed to arrange required LNG cargoes during December and January. However, Qatar bailed Pakistan out by agreeing on an additional contract for supply of LNG cargoes at the lowest price compared to the highest price for spot cargoes.

The share of nuclear power plants in electricity generation came in at 17.5%, but its generation cost was the lowest at Rs1.05 per unit.

Overall power transmission losses were high at 3.02%. Power sector losses have been a major challenge for all governments as they contribute to the rising circular debt in the energy chain.

The actual cost of electricity generation stood at Rs8.65 per unit in December 2021 against the reference price of Rs5.53 per unit. Nepra will hold public hearing on February 1 to decide on the requested increase in electricity tariff.

Published in The Express Tribune, January 22nd, 2022.

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