LAHORE: A Punjab government energy megaproject is at risk of derailment due to an ongoing tussle over gas supply between two state-run energy companies, The Express Tribune has learnt.
Despite strict instructions from the prime minister and the Economic Coordination Committee to resolve the matter, disagreements persist between Pakistan LNG Limited (PLL) and Sui Northern Gas Pipelines Limited (SNGPL) and have delayed work on the 1,263 megawatt Punjab Thermal Power Project being developed in Jhang.
In this regard, the Chief Minister Punjab Sardar Usman Buzdar has written a detailed letter to Prime Minister Imran Khan warning about the looming danger of a huge financial loss to Punjab because of the negligence of federal government subsidiaries.
According to sources, the dispute arose over payment delays and a conflict between SNGPL and the Government of Punjab over a Standby Letter of Credit (SBLC) regarding the supply of 600 million cubic feet of gas per day for the project. They said work on the project has slowed down because payments were not made in due time.
In a meeting with Punjab government officials, the Chinese ambassador to Pakistan also expressed concerns over the undue delay in payment to the Chinese company involved in the project and urged the provincial government to resolve the matter immediately.
With the contract expiring this month, the Punjab government is risking encashment of its Rs61 billion bank guarantee for the project, while the Chinese company may add as much as $15 million in the project cost.
According to senior federal and Punjab government officials, who spoke on the condition of anonymity, in 2017, the Pakistan Muslim League-Nawaz (PML-N) government had signed a contract with CMEC, a Chinese company, to set up the Punjab Thermal Power Project at a cost of Rs107 billion. The completion date of the project was fixed as November 2019.
For the project, 25% of the money was to be provided by the Punjab government while the remaining 75% of the money was taken from banks in the form of loans. In order to import machinery to Pakistan, the Punjab government had pledged banks Rs61 billion as bank guarantee for opening the letter of credit (LC). Banks will cash out these guarantees if the contract is not formally executed. As a result, the Chinese company has completed more than 76% of the project’s mechanical and civil work but has only been paid 23% of the amount.
While there are various problems and obstacles to obtaining funds, the most important challenge for the Punjab government is to negotiate gas procurement for the project which has been pending for the past one year. Despite Prime Minister, Imran Khan’s strict instructions to the federal departments and several assurances from the Punjab government, the project requirement of 186 million cubic feet gas per day is not met as Sui Gas and Punjab Thermal Power Company have not signed an agreement.
The mutual agreement between SNGPL and PLL has been delayed because of disagreements over various issues. PLL officials are adamant on taking back the decision to sign a contract for 185 cubic feet a day gas supply. Instead, they want a fresh contract for 600 million cubic feet a day gas supply which includes provisions for other projects.
In his letter to Prime Minister Imran Khan, Chief Minister Sardar Usman Bazdar has explained the seriousness of the matter and the danger of a major financial loss to the provincial government. Per the letter, in February 2019, PM Imran Khan directed the federal government departments to sign the contract for the supply of gas for the Punjab Thermal Power Project immediately so that the provincial government could start testing the project. However, the federal departments miserably failed to follow instructions.
“I am sorry to say that the departments and the Federal Ministry of Energy, including Sui Northern Gas and Pakistan LNG Company, have failed to understand the gravity and sensitivity of the matter,” CM Buzdar’s letter read, adding that the delays have been caused due to negligence of the departments and institutions involved.
“Due to non-completion of the project within the stipulated time, the Punjab government’s bank guarantee of Rs61 billion could be encashed, while the cost of the project by the Chinese company could increase,” the letter stated.
The Prime Minister has been informed that the Chinese Ambassador to Pakistan, during his visit to the Energy Department of Punjab, talked about the problems of the project, the concerns of the Chinese company, and that the Chinese government has been monitoring the project.
According to sources, 30 of Nespak’s specialists working on the project have not been paid their salaries for the past several months from the project fund.
A Reuters representational image.
Shedding light on the matter, the provincial energy minister Dr Akhtar Malik said that Punjab has been suffering from damage due to unusual delays in agreements between the federal departments.
“We had informed the Prime Minister in February under the leadership of Chief Minister Punjab and he strictly directed the federal departments to provide gas for the project immediately, but no progress has been made so far,” he said.
“The Chief Minister has now informed PM Imran Khan about the delay in the project and its disadvantages and a meeting is expected in the next few days,” the energy minister said, adding that the provincial government was not causing the delay and it was entirely the fault of the federal government departments.
When approached, the Managing Director Sui Northern Gas Company (SNGPL) Amir Tufail told The Express Tribune that SNGPL has no conflict with the Punjab Thermal Company.
“The delay has been caused by the board of directors of Pakistan LNG Company who failed to finalise the purchase of gas,” Tufail said. “The PLL has not approved the draft for purchase and as soon as the draft is approved, we will sign the agreement with Punjab Thermal Power Company.”