ISLAMABAD: The government approved on Friday the conversion of four dual fuel-fired power plants having a combined generation capacity of 910 megawatts to Liquefied Natural Gas (LNG) as part of its policy to promote use of the imported gas in the country.
Project comes on line: PM sees gas surplus in Pakistan with start of second LNG terminal
But it has given a concession to these four IPPs by agreeing to pay them idle capacity payments on non-availability of the LNG despite the fact that these power plants can still be run on HSD as dual fuel. The non-availability of the LNG will be treated as force majeure.
Headed by Prime Minister Shahid Khaqan Abbasi, the Economic Coordination Committee (ECC) of the cabinet authorised the Central Power Purchasing Agency (CPPA) to sign an interim agreement regarding revised payment terms for generation on RLNG by four Independent Power Producers (IPPs), according to the Prime Minister’s Office.
These power plants are Saif Power Ltd 225MW, Orient Power Ltd 225MW, Sapphire Electric Company Ltd 235MW, and Halmore Power Generation Company Ltd 225MW. These IPPs have dual fuel plants, which can be operated on natural gas as primary fuel and High Speed Diesel (HSD) as secondary/alternative fuel, according to the official handout.
The operations of these IPPs on RLNG would result in significant cost saving each month, it added.
Abbasi is taking keen interest in the promotion of the LNG business as an alternate to natural gas and furnace oil. The federal government has contracted two LNG terminals, set up by the private sector, for a period of 15 years. The government is now trying to lift guaranteed LNG volumes aimed at avoiding penalties to terminal operators and LNG importers.
The decision will cut in half the cost of electricity being produced by these four IPPS from Rs12.5 per unit to around Rs6.4 per unit, according to officials of the energy ministry. This will help reduce the overall energy generation cost.
The government has also managed to reduce the idle capacity payments charged from Karachi-Interbank Offered Rate plus 4.5% to Kibor plus 2% for the first month. However, the government has given a concession to these IPPs, as it has agreed to make the idle capacity payments on non-availability of the LNG as fuel despite these plants can still run on the HSD, said the officials.
The government cleared the summary for conversion of these power plants in haste. The Ministry of Finance could not give the comments on the summary in writing, as there was no time for that. One of the main concerns of the finance ministry was about the growing circular debt in the LNG sector. So far, Rs37 billion circular debt has been piled up in the LNG sector despite the energy ministry’s commitments to clear the LNG dues within one month, said the sources.
The total flow of circular debt has touched Rs470 billion, excluding Rs400 billion parked in a power holding company.
The federal government also decided to retain the currently reduced withholding tax rate on banking transactions for non-filers of income tax returns for another six months. The decision to keep the lower withholding tax rate (0.4% against 0.6%) was taken by the ECC on Friday.
It was decided that the period of applicability of reduced rate of 0.4% withholding tax on banking transactions for non-filers shall be extended from December 31, 2017 to June 30. The decision to keep the rates lower also breaches the sanctity of the budget, as the government did not bring any change in section 236P of the Income Tax Ordinance through Finance Act 2017 that parliament had passed in June this year. The decision suggests that the government is not serious about penalising non-filers since the number of filers remained at only 1.14 million.
LNG revolutionising Pakistan’s energy sector
The ECC approved a proposal of allowing United Towel Exporters Limited to remit €8.425m from its special foreign currency account to acquire 70% shares of Vespo Group B V Netherlands. The ECC permitted extension in the deadline of export of 41,000 metric tons surplus urea till February 2018. An additional quantity of 35,000 metric tons urea that will be exported to Sri Lanka was also approved by the ECC.
Published in The Express Tribune, December 30th, 2017.
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