Power generation rises — but at what cost?
Finally, there is some surge in power generation (read: consumption). It increased by 22 percent year-on-year in April 2024 to reach 10,513 GWh, almost matching the reference generation level. Multiple factors are contributing to this increase.
One reason is the reduction in the power tariff for the April–June period, which is encouraging higher consumption from the grid. Another factor is the shift of captive power consumers to the grid, as gas has become prohibitively expensive for them. The third contributor is higher-than-usual temperatures in April, which drove up air-conditioning demand.
However, the increase in generation is primarily from expensive imported sources. RLNG-based generation rose by 10 percent year-on-year and was 42 percent higher than the reference generation. Imported coal-based generation jumped to 1,054 GWh from almost zero in April last year—115 percent higher than the reference.
In contrast, cheaper indigenous sources saw a decline. Nuclear power generation fell by 8 percent year-on-year and was 22 percent below the reference, while hydropower increased by 11 percent year-on-year but still lagged 29 percent behind the reference level.
As a result, the Fuel Cost Adjustment (FCA) turned positive in April 2025 for the first time in nine months, rising by Rs1.27 per unit to Rs8.95 per unit.
The key questions now are: How sustainable is this increase in power generation? And why is the generation mix skewed toward more expensive sources?
The power tariff reduction includes components that are expected to continue into the next fiscal year. One such component is the Tariff Differential Subsidy (TDS), which may persist due to higher petroleum levies. Another is the Quarterly Tariff Adjustments (QTA), including concessions from IPPs, which are likely to be incorporated into the next year's base tariff.
Overall, the reduction in tariffs is expected to persist and should continue to incentivize higher grid-based consumption. This trend is also prompting captive power users to transition to the grid. Captive plants used 110,000 bbtu of gas annually; at 40 percent efficiency, that equates to 12,907 GWh. If 50 percent of that demand shifts to the grid, it could increase monthly consumption by around 500 GWh. This appears to be happening and may continue.
Household consumption is closely tied to weather patterns. The national average temperature in April 2025 was 27.9°C—significantly higher than the long-term average of 24.5°C—ranking as the second highest April temperature in 65 years.
There may be fluctuations in air-conditioning demand in the coming months depending on weather variations, though temperatures in May 2025 have continued to rise. Industrial demand, on the other hand, is expected to remain elevated through FY26.
As for the second question—why the merit order was distorted and why increased generation came from costlier fuels—sources indicate that nuclear generation in the south was constrained due to technical issues and was replaced by imported coal. In the north, lower hydel generation—caused by reduced water availability—was partially offset by increased reliance on RLNG.
Furthermore, excessive RLNG usage may be linked to surplus volumes of must-import RLNG, as captive consumers have begun shifting away from it.
Hydel generation is likely to remain weak this season, while RLNG consumption may stay elevated. This will continue to exert upward pressure on FCA, potentially offsetting the benefit from lower QTA and TDS.
Copyright Business Recorder, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
2 days ago
- Business Recorder
PD tells NA body Rs2.50/litre carbon levy to apply from July 1
ISLAMABAD: Petroleum Division Thursday informed National Assembly's Standing Committee on Finance that the carbon levy of Rs2.50 per litre will be imposed on petroleum products from July 1, 2025. Senior officials from the Petroleum Division informed that at present, petroleum levy stands at Rs77/litre on high-speed diesel (HSD) and Rs78.02/litre on petrol. The government plans to cap it at Rs90/litre. Furnace oil, while phased out from public power plants, continues to be used by IPPs (Independent Power Producers). The government plans to borrow Rs1.275 trillion from commercial banks at a rate 0.9 per cent below the three-month KIBOR to retire existing power-related debts. Rs77 per litre PL on furnace oil likely 'This will eliminate IPPs and Power Holding Company liabilities in six years,' the secretary power division said, adding that Rs683 billion will go toward Power Holding Company dues alone, with Rs323 billion repaid annually. The surcharge of Rs3.23/unit will not apply to lifeline consumers, who continue to receive subsidised rates, he stated. The Committee considered the Amendments in the Petroleum Products (Petroleum Levy) Ordinance,1961. The Committee approved the proposed amendments in principle, with the observation that the Ministry shall brief the Committee on the issue of whether the proposed measure should be classified as a levy or a tax. Committee Chairman Naveed Qamar clarified the recommendation for solar taxation originated from the National Assembly panel, not the Senate, refuting member Mubeen Arif's claim. 'It was our recommendation, not the Senate's,' he asserted. Earlier, Qamar recalled, the committee had suggested avoiding any tax on solar to promote renewable energy. The committee also discussed plans to boost electric vehicle (EV) production as per global climate commitments. While Pakistan currently has 76,000 EVs, officials aim to raise production to 2.2 million in five years, mostly comprising electric motorcycles. However, concerns arose as officials revealed the government plans to finance EV subsidies by levying new taxes on vehicle buyers. According to the Industries Secretary, a 1pc levy will apply to cars up to 1300cc, 2pc for cars between 1301cc–1800cc, and 3pc for cars above 1800cc. Committee members were surprised to learn that these levies were not mentioned in the Finance Bill 2025-26. The Committee considered the amendments in the enactment of the New Energy Vehicle Adoption Levy Act, 2025. During detailed deliberations, the Committee observed that there is no comprehensive plan in place for the transition to Electric Vehicles (EVs), particularly due to the inadequate availability of recharging stations. Accordingly, the proposed shift to EVs and the corresponding imposition of tax were deemed unsatisfactory and lacking a proper implementation framework. It was further noted that hybrid vehicles have not been included in the proposed measures. Given these concerns, the Committee decided to defer consideration of the matter until the next meeting, with directions to the Ministry to present a comprehensive and actionable plan for the implementation of the objectives outlined in the proposed bill. The Committee considered the amendments in the Sales Tax Act, 1990. The Committee undertook a clause-by-clause examination of the proposed amendments to the Sales Tax Act, 1990. Following detailed deliberations, the Committee approved the majority of the clauses. However, it proposed amendments to certain provisions where deemed necessary. Provisions relating to fraud were deferred for further consideration, and the Bill was accordingly deferred for reconsideration in the next meeting. Furthermore, the Committee recommended a review of the Export Finance Scheme (EFS) concerning raw cotton, and suggested that tax imposition on local production be brought at parity with that on imported cotton. It was further recommended that these observations be forwarded to the Secretary of Commerce and Chairman, Federal Board of Revenue (FBR), for necessary action and compliance. The Committee considered the amendments in the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997). After detailed deliberations, the Committee recommended that the revised amended draft, as submitted by the Ministry, be approved. The Committee considered the proposed amendments to the Stamp Act. During detailed deliberations, it was observed that the term non-filer is being used in the proposed amendment, even though this category has been removed from the applicable laws. In light of this inconsistency, the Committee decided to defer consideration of the amendment until the next meeting. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business Recorder
Power sector circular debt plan okayed by Cabinet
ISLAMABAD: The federal cabinet on Wednesday approved the country's largest-ever financial restructuring plan aimed at addressing the long-standing issue of circular debt in the power sector, targeting the elimination of Rs1.275 trillion in circular debt over the next six years. A statement issued by the Prime Minister's Office after the cabinet meeting, chaired by Prime Minister Shehbaz Sharif, said the plan aims to eliminate Rs1.275 trillion in circular debt over six years without adding pressure to the national budget. The cabinet described this as a major milestone towards energy sector reform. The statement said that under the scheme, Rs683 billion in debt held by the Power Holding Company will be refinanced, while overdue payments to independent power producers (IPPs) will be cleared. Power sector debt: Govt secures historic Rs1.275trn loan deal from banks The cabinet described the move as a historic step towards restoring financial stability in the power sector and a key measure to boost investor confidence. It praised the finance minister and the broader economic team for presenting a public-friendly budget for the upcoming fiscal year. During the cabinet meeting, the prime minister expressed deep concern over the escalating armed conflict between Iran and Israel, warning that the situation posed a serious threat to both regional and global peace. While chairing the federal cabinet meeting, Sharif reiterated Pakistan's complete solidarity with Iran and its people against Israeli aggression. He said Pakistan strongly condemned the attacks, which had resulted in the deaths of hundreds of Iranian civilians and injuries to many others. PM Sharif called on the international community to intervene and press for an immediate ceasefire. 'The global powers should ensure a ceasefire,' he said, expressing hope for lasting peace in the region. The prime minister informed the cabinet that he had spoken to Iranian President Masoud Pezeshkian during the crisis to convey Pakistan's solidarity and to condemn the Israeli attacks. He also held discussions with Turkish President Recep Tayyip Erdogan on the evolving situation. Turning to the situation in Gaza, PM Sharif said the suffering there was heart-wrenching and noted that more than 50,000 Palestinians had been killed. 'Brutality is being unleashed. When will the world's conscience wake up,' he asked. Sharif announced that Deputy Prime Minister and Foreign Minister Ishaq Dar would represent Pakistan at the Organisation of Islamic Cooperation (OIC) foreign ministers' meeting in Türkiye on June 21-22. Discussing the recently unveiled federal budget for 2025-26, the prime minister showered praise on Finance Minister Muhammad Aurangzeb, the finance team, and the chairman of the Federal Board of Revenue (FBR) Rashid Mehmood Langrial for consulting allied parties and stakeholders in budget preparations. He said Pakistan had persuaded the International Monetary Fund (IMF) not to impose taxes on the agriculture sector, including levies on fertilisers and pesticides, arguing that the sector was already under pressure. The IMF agreed to the request, he added. PM Sharif noted that individuals earning between Rs600,000 and Rs1,200,000 annually would now pay only 1% in income tax, compared with 5% last year. In a veiled criticism of the previous Pakistan Tehreek-e-Insaf (PTI) government, he said his administration had avoided the policy missteps that had pushed the country to the brink of default. 'We have pulled back the country from a financial fiasco, and now it is moving forward,' he added. He also highlighted the government's increased allocation for the Public Sector Development Programme (PSDP), which had been raised to Rs1,000 billion in the current fiscal year. He said the government had expanded fiscal space to meet the armed forces' equipment needs as part of its ongoing fight against terrorism. He credited the recent great victory in a conflict with India to the professionalism of the armed forces and the support of 240 million Pakistanis. The cabinet approved the appointment of Kamaluddin Tipu as chairperson of the Commission for the Protection of Journalists and Media Professionals, following a recommendation by the Ministry of Human Rights. It also approved an exemption under Section 21 of the Public Procurement Regulatory Authority Ordinance 2002, allowing the National Power Parks Management Company Limited to procure services for the acquisition of the Rousch Power Plant. Additionally, the cabinet ratified decisions taken by the Cabinet Committee on Legislative Cases in a meeting held on 21 May 2025. He commanded Bilawal Bhutto Zardari and his delegation for effectively presenting Pakistan's case against Indian unilateral and illegal aggression during visits to the United States and Europe. Sharif also lauded Chief of Army Staff Field Marshal Asim Munir for affirming Pakistan's resolve to defend its borders and national interests in an address to the Pakistani community in the US. Copyright Business Recorder, 2025
Express Tribune
6 days ago
- Express Tribune
SBP holds interest rate at 11% amid signs of recovery and stable inflation
Listen to article The State Bank of Pakistan (SBP) has decided to maintain the policy interest rate at 11% in its latest monetary policy statement, citing expectations of stabilised inflation and gradual economic recovery. According to the SBP, inflation in May rose by 3.5%, and it is expected to align with the target range in FY26. Despite a consistent rise in the trade deficit, the current account remained nearly balanced in April 2025. The central bank also noted that proposed budgetary measures may further widen the trade gap. Pakistan's real GDP growth for the current fiscal year has been estimated at 2.7%, while a target of 4.2% has been set for the next fiscal year. Economic momentum improved in the second half, with GDP growth reaching 3.9%, driven by better performance in industry and services. However, the agriculture sector underperformed due to a decline in key crop yields. The SBP reported that foreign exchange reserves had risen to $11.7 billion. The current account posted a $1.9 billion surplus over the past 10 months. The central bank reaffirmed that the existing interest rate is appropriate to maintain inflation within the 5–7% range. It expects continued economic growth next year, led by industrial and services sectors, despite limited inflationary impact from the latest federal budget. Earlier, the central bank is expected to hold its policy rate, a Reuters' poll showed, as many analysts shifted their previous view of a cut in the wake of Israel's military strike on Iran, citing inflation risks from rising global commodity prices. Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a "pre-emptive strike" to prevent Tehran from building an atomic weapon. Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict. The escalating hostilities triggered a sharp spike in oil prices – a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies. Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 11%. Two forecast a 100-basis-point cut and one predicted a 50bps cut. On the other hand, the International Monetary Fund (IMF) has raised concerns over provision of Rs344 billion grants to various sectors without approval from the National Assembly. Sources said the multilateral lender termed the grant for defence, Independent Power Producers (IPPs) and other sectors without the nod of parliament a violation of the govt-IMF agreement. The federal government has additionally spent Rs344.66 billion during the current fiscal year in the shape of grants. The government doled out Rs115 billion to IPPs, Rs30 billion to flood victims in Sindh, and Rs6 billion to the Federal Board of Revenue (FBR). Similarly, it spent Rs14 billion on solarization, Rs23 billion on anti-terrorism initiatives, and Rs2 billion on technology upgrades. Likewise, the government also released Rs3.7 billion for the Reko Diq project, Rs520 million for Special Investment Facilitation Council (SIFC) and Rs7 billion for parliamentarians' schemes.
