Power distribution companies might issue Rs 3.9 billion in refunds

Public sector power companies are seeking a downward revision in the fuel price adjustment (FCA) by approximately one rupee per unit for all electricity consumed in December 2024.

According to reports, if the revision is approved, power distribution companies (Disco) would be liable to pay back almost four billion rupees to consumers in February. Financial experts are outlining how this may negatively impact the cash flows of Discos.

The silver lining for Discos is that electricity demand has grown by 1.3 percent over the past year. Analysts suggest that this higher demand mitigates the financial setback from the refunds.

Fuel costs were 1.42 rupees lower per unit in the same period in 2024 compared to December 2023. This could be attributed to the fact that approximately 78 percent of the total power supply in December came from local fuel sources, with half of this energy coming from either hydropower or nuclear energy.

Hydropower energy is considered to be procured at ‘Zero fuel cost’, and despite the share of hydropower energy dropping in the past month, FCA’s have remained negative for the past six months. The share of hydropower in national electricity has dropped from 35.61 percent to 22.8 percent as per reports.

Power generation from renewable sources has seen a boost in recent years. Sources such as wind and solar have contributed a five percent share of the national grid. Since these sources, coupled with hydropower, have no cost, it makes sense why FCAs have been dropping.

The refunds may spell great news for businesses, especially those that utilise a lot of electricity for daily operations. The primary beneficiary will be the textile sector, as industrialists are likely to notice a drop in operating costs, which will directly translate into higher profit margins.

Additionally, for consumers reliant on the national grid, the refunds will increase the general public's purchasing power. This could allow businesses to increase sales volumes, which would boost revenue levels.

Analysts are also outlining how a rising reliance on nuclear power generation may benefit the economy by shifting away from higher-priced imported fuels. Nuclear power contributed 26.5 percent to the national grid in December, up by five percent compared to November 2024.

If this trend continues, efforts to explore and extract uranium might pick up pace. Uranium is found in central and southern Pakistan, where mining operations could take place.