Pakistan’s Power Sector: A Looming Cycle of Fuel Cost Adjustments?
Consumers in Pakistan are bracing for another potential hike in electricity bills, with power companies seeking a Rs1.64 per unit Fuel Cost Adjustment (FCA) for February consumption. This follows a recent Rs1.63 per unit increase, raising concerns about the affordability of electricity and the stability of the power sector. The National Electric Power Regulatory Authority (Nepra) will hold a public hearing on March 31 to review the request.
The February FCA: Demand vs. Domestic Generation
The Central Power Purchasing Agency (CPPA) attributes the demand for this additional FCA to increased electricity demand in February, which was 11.42% higher year-on-year, despite being 15% lower than January’s consumption. Interestingly, the CPPA’s petition highlights that over 75% of power generation during February came from comparatively cheaper domestic sources. Despite this, the average fuel cost for February is claimed to be Rs8.37 per unit, compared to Rs8.23 per unit in the same month last year.
Fuel Mix Shifts and Cost Drivers
A closer gaze at the fuel mix reveals some key shifts. Hydropower’s contribution rebounded to over 23% in February, recovering from a low of 8% in January following annual canal closures. Nuclear power also increased its share to 18.83%. Though, reliance on Regasified Liquefied Natural Gas (RLNG) significantly decreased, falling from 22% in January to 9.47% in February. Despite this reduction, RLNG remains the most expensive fuel source at Rs23.21 per unit.
Local coal and imported coal accounted for 16% and almost 15% of the national grid supply, respectively. The cost of nuclear fuel also saw an increase, rising from Rs2.23 per unit in January to Rs2.50 per unit in February. Notably, there was no generation from furnace oil or diesel in February.
The Impact on Consumers and the Grid
If Nepra approves the CPPA’s request, consumers will collectively bear an additional cost of approximately Rs12.2 billion in their April bills. This impacts all consumers, including those served by ex-Wapda Distribution Companies (Discos) and K-Electric. The CPPA reported that 7,427 GWh of electricity was delivered to Discos in February, with a total generation of 7,696 GWh at an estimated fuel expenditure of Rs62.75 billion.
Looking Ahead: Potential Trends and Challenges
The recurring cycle of FCAs suggests underlying systemic issues within Pakistan’s power sector. Several factors contribute to this volatility:
- Fluctuating Fuel Prices: Global fuel prices, particularly for RLNG and imported coal, remain a significant risk factor.
- Hydropower Dependency: Reliance on hydropower, although cost-effective, is subject to seasonal variations and water availability.
- Transmission and Distribution Losses: High transmission and distribution losses continue to burden the system and contribute to higher costs.
- Circular Debt: The persistent issue of circular debt within the power sector hinders investment and efficiency improvements.
Future trends likely include increased investment in renewable energy sources – wind, solar, and bagasse – to diversify the fuel mix and reduce dependence on imported fuels. However, the intermittency of renewables requires investment in energy storage solutions and grid modernization. Improving the efficiency of existing power plants and reducing transmission losses are crucial steps towards stabilizing electricity prices.
FAQ
Q: What is a Fuel Cost Adjustment (FCA)?
A: An FCA is a mechanism used to pass on fluctuations in fuel costs to consumers. If fuel costs increase, the FCA increases the per-unit price of electricity, and vice versa.
Q: Who is responsible for approving FCAs?
A: The National Electric Power Regulatory Authority (Nepra) is responsible for reviewing and approving FCAs.
Q: What is the CPPA?
A: The Central Power Purchasing Agency (CPPA) is responsible for procuring electricity from various generation companies and supplying it to distribution companies.
Q: What is the impact of increased hydropower generation?
A: Increased hydropower generation typically lowers the overall fuel cost due to its relatively low cost compared to other sources.
Did you know? The cost of bagasse-based fuel has almost doubled in the past year, from Rs5.96 per unit in February 2025 to Rs10.39 per unit in February 2026.
Pro Tip: Monitor your electricity consumption and explore energy-saving measures to mitigate the impact of rising electricity prices.
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