Energy Pricing

THE government seems to have finally recognised the importance of seasonal energy pricing for domestic and commercial consumers as it struggles to improve electricity sales and discourage consumption of gas for space heating. Well, better late than never. The energy ministry is pitching a proposal for implementing new seasonal energy pricing for both domestic and commercial consumers to motivate people to consume more electricity by lowering power rates during off-peak months. The move highlights the twin problems of a substantial plunge in electricity demand and an unmanageable spike in gas consumption facing the authorities during off-peak months, chiefly in winters, leading to the creation of an additional large, unused generation capacity surplus and a massive gas shortage across the country.

The energy ministry expects that electricity use during the off-peak months will be boosted by up to 300 MW while gas demand will drop by around 50mmcfd once the new seasonal pricing becomes effective. That should somewhat help the government grapple with large gas subsidies and power-sector capacity payments. Increasing electricity consumption by the industry after tariffs were lowered on an incremental basis under an industrial energy package, demonstrates that such incentives can help absorb at least part of surplus generation. Industrial power consumption has gone up from 5pc to 18pc in 10 months and is expected to rise further by 25pc in Discos’ network and about 40pc in K-Electric jurisdiction.

In an unrelated move, the government has raised the price of CNG, making it far dearer than petrol. Apparently, the decision was also prompted by surging LNG prices, which are projected to hold firm amid tight supply-demand fundamentals as global recovery from Covid-19 gathers momentum. The shift of transport to fuel oil from CNG will help reduce expensive LNG imports, saving the country precious foreign exchange at a time when the trade deficit has hit a high of over $4bn. Although CNG owners resent the move, saying it would jeopardise their investments to the tune of billions of rupees, it is difficult to not agree with the decision when the local gas reserves are depleting fast and no significant discoveries have been made in a long time. While periodic changes in different energy prices are necessary to discourage or encourage the consumption of one fuel or the other for achieving economies of cost, long-term sustainability of the energy supply chain hinges on the early implementation of governance reforms in the power and gas sectors.

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