Pakistan's improved energy generation mix and reduced import bill in FY19 are being celebrated the most. A shift from FO based generation with a share as high as 30 percent in FY17 to just 7 percent and further decreasing, surely warrants a mention. It is nothing short of an achievement and the previous government's efforts in this regard must be highlighted.
The power generation mix has now tilted towards more gas based generation, of which RLNG has the lion's share of 23 percent, up from a paltry 6 percent in FY17. The FO and RLNG roles have certainly reversed, and it bodes well for the average generation fuel cost. Similarly, there has been a steady rise in coal based power generation, the share of which has gone up from less than 1 percent in FY17 to 13 percent in FY19 – and is expected to grow further, with Thar power plants commissioned.
All this while, the fuel import bill has not gone down – staying flattish over FY18 at $5.4 billion and 32 percent higher than FY17. The rise in power generation on import based fuel over FY17 is much in sync with the rise in import bill – at 35 percent, whereas the combined generation from coal, FO and RLNG has gone down by 4 percent over FY18.
The average fuel cost for both RLNG and coal has gone considerably higher in FY19, much higher than the average increase in international crude oil price. The crude oil is averaged 9 percent higher year-on-year in FY19, whereas fuel cost component in power tariffs for coal and RLNG soared by 30 percent and 18 percent, respectively, year-on-year. That said, the benefit from shifting from FO to other imported fuels cannot be discounted, as average fuel cost for FO based generation is 50 percent higher than coal and RLNG – it has surely saved Pakistan a couple of billion dollars last year, if not more.
LNG imports will continue to be on the rise with the three major plants in full swing and operating on “take or pay" contract basis till 2032. The commissioning of Thar coal power plants can lessen the burden in terms of imported coal, but that may not be huge, as other coal plants also sit higher in the merit order, and may not result in reduced coal imports. Too bad, the end users will continue to be deprived of any benefits of improved generation mix in terms of final tariffs, due to massive capacity payments that are close to a trillion rupees (see: capacity payments nearing trillion rupees, published July 19, 2019).