Exemption from guaranteed LNG sought
The Power Division is seeking exemption from guaranteed liquefied natural gas (LNG) offtake for three power plants, a move that may aggravate woes of LNG suppliers and hurt gas imports from Qatar.
Since Pakistan started importing LNG from Qatar in 2015, the Pakistan Muslim League-Nawaz (PML-N) has been facing criticism from different quarters for striking a long-term LNG deal at high rates, which resulted in lower consumption of the fuel in the power sector.
LNG-based power plants were set up during the 2013-18 tenure of PML-N government with higher efficiency rates. However, the plants have remained shut most of the time because of being lower in the economic merit order, which leads to lower consumption of LNG and millions of dollars in capacity payments to LNG terminal operators.
At present, textile, compressed natural gas (CNG) and fertiliser sectors are consuming LNG. Textile and fertiliser industries are receiving LNG at almost half the actual price, which has put a burden of billions of rupees on the national exchequer.
The three LNG-based power plants had signed a gas sale-purchase agreement with LNG suppliers at a minimum 66% offtake.
However, the Power Division withdrew from the agreement of guaranteed gas offtake for a 1,263-megawatt LNG-based power project near Trimmu Barrage, fearing that the project may not come on top of the merit order due to expensive gas.
Earlier, the government had decided that 66% guaranteed offtake would continue till 2025 due to an agreement with Qatar as contracts had already been signed and had a back-to-back cover through the supply chain. However, such conditions will be revisited after 2025.
Power producers feel that LNG-based power plants are not economical because of high gas prices. This is why such plants stay shut most of the time.
However, consumers are bound to pay capacity charges if the plants are not operated at full capacity. LNG terminal operators also receive capacity charges if their facilities are not run at maximum capacity due to low offtake by power producers.
The Power Division sought waiver from the minimum offtake condition in a meeting of the Cabinet Committee on Energy on Thursday, chaired by Federal Minister for Planning, Development and Special Initiatives Asad Umar.
The proposal was part of government’s efforts to produce electricity through the most economical sources and reduce reliance on relatively expensive resources.
The committee directed the Power Division as well as Finance Division to engage in further deliberations in order to ensure that both electricity and gas sectors were able to meet their demand and supply requirements without any disruption.
At present, Pakistan State Oil (PSO) and Pakistan LNG Limited are importing 800 million cubic feet of LNG per day (mmcfd) on a “take or pay” basis, which means that they will have to pay the cost of gas even if they do not receive supplies.
In coming years, the LNG deal with Qatar will be in doldrums as Pakistan government has allowed power producers the import and marketing of LNG on their own.
Other sectors like CNG filling stations and fertiliser producers also want to import gas themselves and are not willing to receive expensive supplies, which cost 13.37% of crude oil price under the Pakistan-Qatar deal. Critics of the deal suggest that there should have been a clause for a gas price review after every five years.
However, according to the agreement, the gas price will be reviewed after 10 years. Owing to that, the power sector is not ready to guarantee gas offtake after the first review in 2025.
The cabinet committee also considered a Power Division proposal for shutting down low-efficiency power plants. After detailed deliberations, the committee approved the proposal for the closure of plants in a phased manner.
It directed the Power Division to come up with exact dates for the closure of power plants. It also called for making recommendations relating to the human resources working in these plants on a fair and just basis.
Published in The Express Tribune, September 11th, 2020.
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