Power consumers brace for biting heat

Delay in gas supply deal between K-Electric and SSGC may aggravate load-shedding

ISLAMABAD:

Power consumers in Karachi may be in for a sweltering summer amidst signs that supply of an additional 450 megawatts from the first unit of K-Electric’s new re-gasified liquefied natural gas (RLNG)fired plant at Bin Qasim may not begin on time due to delay in inking a gas supply agreement with Sui Southern Gas Company (SSGC) and other challenges.

At a press conference held last month, the power utility shared the progress on its plant, announcing that the first unit was on track for commissioning ahead of the summer season, subject to fuel availability.

However, fuel supplies continue to remain uncertain as no agreement has been signed coupled with the issue of K-Electric’s payables to SSGC - a matter that cannot be settled even after the involvement of judiciary and federal government.

Claiming that K-Electric owes Rs122 billion in outstanding dues, SSGC has indicated its reluctance to sign the gas supply deal until payments are made.

The power utility, in turn, contends that the actual amount owed to SSGC is only Rs13.7 billion, which the utility has not been able to pay due to default on payments by Karachi Water and Sewerage Board (KWSB) for power consumption.

K-Electric argues the remaining amount is mark-up which has been unduly charged when the matter is sub judice in the Sindh High Court.

An SSGC spokesperson told The Express Tribune, “The new RLNG-fired plant of K-Electric is based on RLNG supply by PLL (Pakistan LNG Limited), not SSGC. Now, K-Electric will have to finalise GSA (gas supply agreement) with PLL.”

The dispute has not only become a major impediment to the sale of K-Electric’s 66% shares to Shanghai Electric Power of China, but now it also appears to be putting Karachi’s energy security at stake.

Even if K-Electric is able to finish work on its 450MW power generation unit by April or May, the power utility may not have the RLNG needed to run the plant in the absence of a valid GSA.

While K-Electric has signed an agreement with PLL for supply of 150 million cubic feet per day (mmcfd) of RLNG, the pipeline system of SSGC will have to be used to transmit this gas.

Meanwhile, the gas utility insists that the payables and receivables need to be settled before it allows K-Electric to use its pipeline. The onus is now on the government to pave the way for the signing of GSA at the earliest and ensure enhanced power supply to Karachi.

Realising the urgency of the matter, the government had stepped up efforts to resolve the issue through arbitration.

Initially, K-Electric prepared terms of reference (TORs) for arbitration where it proposed that the case should be filed in London because of 66% foreign shareholding in the power utility.

It also insisted that the principle of reciprocity should be applied ie either markup be waived or applied to both K-Electric payables and receivables.

However, the Power Division rejected both of these proposals. On the advice of Power Division Secretary Ali Raza Bhutta, K-Electric agreed that arbitration proceedings may be held in Pakistan and also agreed to take back the demand for applying the principle of reciprocity.

While it was highly anticipated that it would be the catalyst for resolving the dispute, no further progress on arbitration proceedings could be made.

The lacklustre response of the government indicates little interest in resolving the row ahead of summer. It also remains to be seen if the parties in the arbitration process are willing to give any ground for settling the matter.

According to sources in the Ministry of Energy, the other side is balking on potentially having to back down from claiming interest on delayed payments, since claiming interest would not be possible if Shariah is the guiding principle for arbitration.

Considering Karachi’s 400MW power shortfall last year resulted in up to 10 hours of load-shedding including for industrial categories, accounting for 5% increased power demand and no power inflow from the 450MW plant, magnifies the power shortfall further and heralds a gruelling summer for Karachiites.

For Karachi’s industries this is unacceptable since it likely means another summer of compromised industrial production and exports with captive power plants already going to be deprived of natural gas and their dependence on K-Electric increasing.

 K-Electric’s version

“As Karachi’s power provider, we remain fully committed to serving both the enhanced industrial demand on account of captive shift as well as the organic growth in residential demand through expedited investments and infrastructure upgrades. Full-throttle efforts are underway by K-Electric to ensure that the first unit of our flagship 900MW RLNG-fired power plant and associated transmission infrastructure are commissioned ahead of summers so that Karachi’s energy demand may be managed better than previous years,” a K-Electric spokesperson told The Express Tribune.

“In parallel, we are also working with the CPPA-G/ NTDC for necessary interconnection upgrades so that K-Electric may draw an additional 450MW from the national grid. To ensure timely execution of both these mega-power projects, we are constantly engaged with all stakeholders including SSGC, government of Pakistan, CPPA-G and NTDC to finalise the GSA and power purchase agreements (PPA), respectively. We eagerly await swift resolution of few long-standing issues that have delayed the GSA and PPA so far. Timely conclusion of both these agreements is absolutely vital for enhancing Karachi’s power supply situation and critical to minimise the power supply demand gap anticipated in upcoming months,” the official added.