1,263MW LNG plant to cause losses worth Rs202b
Power Division says running RLNG power plants on 66% must-run scenario has become uneconomical
Representational image. PHOTO: REUTERS
ISLAMABAD:
The Power Division has informed the government that running the 1,263-megawatt LNG-based power project near Trimmu Barrage on expensive imported gas, while ignoring other cheaper fuel options, would result in cumulative loss of Rs202 billion up to 2025.
Pakistan has a long-term supply contract of 500mmcfd LNG with Qatar and the first review is due in 2025. At present, Pakistan has LNG-based power plants which have remained closed for most of the time due to expensive LNG imports. The deal was materialised during the tenure of the previous government of Pakistan Muslim League-Nawaz (PML-N).
According to an analysis conducted by the Power Division, the running of RLNG power plants on 66% must-run scenario had become uneconomical due to the long-term gas contracts for RLNG supply which do not have the price flexibility and are making these RLNG power plants rank lower in the merit order.
The 1,263-megawatt LNG-based power project near Trimmu Barrage is being set up by the Punjab government which requires 119mmcfd as 66% take or pay condition of gas but this plant will also fall out of the merit order.
“If these trends in prices as well as currently load forecast remains unchanged, the existing minimum guaranteed off-take of 66% under the Power Purchase Agreement (PPA) will not be the most economical while replacing the local coal, indigenous low mmbtu gas and imported coal and will further translate into a cumulative loss of Rs202 billion up to 2025,” the Power Division said in a report submitted to the government. It said that in case of this plant the diversion may not be possible which would limit the price mitigation factor.
The Power Division further said that diversion of around Rs119mmcfd take or pay RLNG to the power sector at the existing price of Rs1700mmcfd translates into an increase of around Rs88 per mmbtu price on an annual basis while the same diversion in the gas sector will result in the increase of Rs55 per mmbtu on an annual basis at the existing pool price of Rs738 per mmbtu.
Further in terms of economic value of heating unit, Take-or-Pay (TOP) volume of 119mmcfd of gas for the end consumers in the gas sector will have a loss of around 13.8%. In addition, on account of benchmark losses profiles and actual recoveries in the electricity and gas sector, diversion of 119mmcfd in electricity sector will add around Rs27.398 billion to the circular debt on an annual basis while the same volume will add around Rs5.9 billion in the gas sector on an annual basis.
The Economic Coordination Committee (ECC) has already decided that the 66% guaranteed take-off of LNG in case of two plants of National Power Parks Management Company Limited (NPPMCL) being privatised will continue till year 2025 as their contracts have already been signed and have back to back cover throughout the supply chain but beyond year 2025 these conditions will be revisited.
For instant cases where Gas Sales Agreement (GSA) and PPA are to be signed, agreeing to a 66% must off-take will not be prudent, the Power Division said. It added that as a mitigation factor for this gas volume, discussions were held with the K-Electric and it was agreed that the utility will build a pipeline for supply of RLNG to its power plants at its own cost consuming 150mmcfd of gas. Any actual downward deviation of K-Electric from the firm allocation of 54,750mmcfd in the actual shall be subject to net proceed differential (NPD), which is to be borne by K-Electric.
For such arrangements necessary contractual arrangement shall be made to give effect to the said transaction. It is worth mentioning that to attain financial close of this project which is owned by government of Punjab, GSA can be signed on take or pay basis and the stakeholders are in agreement in this arrangement including the lenders, Sui Northern Gas Pipelines Limited (SNGPL) and Central Power Purchasing Agency (CPPA-G).
The Power Division had submitted a response to the government that the contract may be signed on a take or pay basis or if ‘take or pay’ basis is required to be part of the contract, the guaranteed 66% off-take of gas condition should not be part of the GSA, PPA.
It had also stated that the Trimmu Power Plant will be utilised within the existing guaranteed 66% allocation of the three LNG based power plants; Balloki, Haveli Bahadur Shah, and Bhikki till 2025 without impact on the capacity payment and K-Electric plant diversion be made part of this package.
After 2025, the GSA of Trimmu Power Plant with SNGPL shall be formulated in accordance with RLNG requirements of power sector discovered through the annual production plan.
Published in The Express Tribune, February 5th, 2020.
The Power Division has informed the government that running the 1,263-megawatt LNG-based power project near Trimmu Barrage on expensive imported gas, while ignoring other cheaper fuel options, would result in cumulative loss of Rs202 billion up to 2025.
Pakistan has a long-term supply contract of 500mmcfd LNG with Qatar and the first review is due in 2025. At present, Pakistan has LNG-based power plants which have remained closed for most of the time due to expensive LNG imports. The deal was materialised during the tenure of the previous government of Pakistan Muslim League-Nawaz (PML-N).
According to an analysis conducted by the Power Division, the running of RLNG power plants on 66% must-run scenario had become uneconomical due to the long-term gas contracts for RLNG supply which do not have the price flexibility and are making these RLNG power plants rank lower in the merit order.
The 1,263-megawatt LNG-based power project near Trimmu Barrage is being set up by the Punjab government which requires 119mmcfd as 66% take or pay condition of gas but this plant will also fall out of the merit order.
“If these trends in prices as well as currently load forecast remains unchanged, the existing minimum guaranteed off-take of 66% under the Power Purchase Agreement (PPA) will not be the most economical while replacing the local coal, indigenous low mmbtu gas and imported coal and will further translate into a cumulative loss of Rs202 billion up to 2025,” the Power Division said in a report submitted to the government. It said that in case of this plant the diversion may not be possible which would limit the price mitigation factor.
The Power Division further said that diversion of around Rs119mmcfd take or pay RLNG to the power sector at the existing price of Rs1700mmcfd translates into an increase of around Rs88 per mmbtu price on an annual basis while the same diversion in the gas sector will result in the increase of Rs55 per mmbtu on an annual basis at the existing pool price of Rs738 per mmbtu.
Further in terms of economic value of heating unit, Take-or-Pay (TOP) volume of 119mmcfd of gas for the end consumers in the gas sector will have a loss of around 13.8%. In addition, on account of benchmark losses profiles and actual recoveries in the electricity and gas sector, diversion of 119mmcfd in electricity sector will add around Rs27.398 billion to the circular debt on an annual basis while the same volume will add around Rs5.9 billion in the gas sector on an annual basis.
The Economic Coordination Committee (ECC) has already decided that the 66% guaranteed take-off of LNG in case of two plants of National Power Parks Management Company Limited (NPPMCL) being privatised will continue till year 2025 as their contracts have already been signed and have back to back cover throughout the supply chain but beyond year 2025 these conditions will be revisited.
For instant cases where Gas Sales Agreement (GSA) and PPA are to be signed, agreeing to a 66% must off-take will not be prudent, the Power Division said. It added that as a mitigation factor for this gas volume, discussions were held with the K-Electric and it was agreed that the utility will build a pipeline for supply of RLNG to its power plants at its own cost consuming 150mmcfd of gas. Any actual downward deviation of K-Electric from the firm allocation of 54,750mmcfd in the actual shall be subject to net proceed differential (NPD), which is to be borne by K-Electric.
For such arrangements necessary contractual arrangement shall be made to give effect to the said transaction. It is worth mentioning that to attain financial close of this project which is owned by government of Punjab, GSA can be signed on take or pay basis and the stakeholders are in agreement in this arrangement including the lenders, Sui Northern Gas Pipelines Limited (SNGPL) and Central Power Purchasing Agency (CPPA-G).
The Power Division had submitted a response to the government that the contract may be signed on a take or pay basis or if ‘take or pay’ basis is required to be part of the contract, the guaranteed 66% off-take of gas condition should not be part of the GSA, PPA.
It had also stated that the Trimmu Power Plant will be utilised within the existing guaranteed 66% allocation of the three LNG based power plants; Balloki, Haveli Bahadur Shah, and Bhikki till 2025 without impact on the capacity payment and K-Electric plant diversion be made part of this package.
After 2025, the GSA of Trimmu Power Plant with SNGPL shall be formulated in accordance with RLNG requirements of power sector discovered through the annual production plan.
Published in The Express Tribune, February 5th, 2020.