LNG supply: IPPs will have to pay mark-up for delay in payments

ECC decided that the mark-up will be KIBOR plus 2%


Zafar Bhutta August 03, 2016
The new mechanism would eliminate the mismatch between payment commitments in the supply chain as any disruption in timely payments could jeopardise the smooth flow of LNG to the power producers. PHOTO: FILE

ISLAMABAD: The government has decided to impose mark-up on liquefied natural gas-based power producers for any delay in payments in a bid to address concerns of LNG supplier Qatar over accumulation of circular debt.

In case of delay in payments, the mark-up would be slapped at Karachi Inter-bank Offered Rate [Kibor] plus 2%, the Economic Coordination Committee [ECC] decided in its meeting held on June 28.

Under a new approved mechanism, the Central Power Purchasing Agency [CPPA] will make payments to independent power producers [IPPs] every week instead of existing monthly payments as provided in the power purchase agreement [PPA].

The IPPs will send a provisional power supply bill to the CPPA in line with the bill of Sui Northern Gas Pipelines Limited [SNGPL] after seven days of electricity generation with the help of re-gasified LNG. The CPPA will make the payment within three days of the receipt of weekly invoice.

At month-end, the IPPs will prepare a monthly invoice according to the PPA and the weekly provisional payments will be adjusted accordingly. Partial or complete closure of a power plant due to unavailability of re-gasified LNG or swapped natural gas will be treated as force majeure.

In line with a memorandum of understanding signed between the Ministry of Water and Power and the Ministry of Petroleum and Natural Resources pertaining to the payment procedure for re-gasified LNG, a draft agreement was discussed in detail and finalised by Rousch Power, Fauji Kabirwala Power Company and the CPPA.

The power ministry asked the ECC to consider the new payment mechanism along with its implications for the price of energy purchase from Rousch Power as spelled out in the draft agreement. The ECC approved the new mechanism.

The ministry recalled that in view of the gas shortage in the country, the government had decided to import LNG to meet domestic needs and consequently an LNG sale and purchase agreement was struck by Qatargas and Pakistan State Oil [PSO], which was designated by the government as the gas purchaser.

The government has allocated 85 million cubic feet of LNG per day [mmcfd] to Rousch Power and 30 mmcfd to Fauji Kabirwala Power Company as and when available basis.

The Ministry of Water and Power told the ECC that under the existing PPA the CPPA would receive the invoice on or after the first day of every month for electricity supplied during the preceding month and make the payment after 25 days. Thus, there was a payment cycle of 55 days.

On the other hand, PSO was required to pay to Qatargas within 10 days of arrival of an LNG ship, which created a mismatch between the payment terms.

To remove this anomaly, a mechanism was discussed and agreed between Rousch Power, Fauji Kabirwala and the power purchaser. The new mechanism would eliminate the mismatch between payment commitments in the supply chain as any disruption in timely payments could jeopardise the smooth flow of LNG to the power producers, the ECC was informed.

Published in The Express Tribune, August 3rd, 2016.

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