Govt mulls reducing gas price for IPPs

Aims to cut power tariff, reduce fuel imports and save forex reserves

KARACHI:

The government is working with some independent power producers (IPPs) to revise the price of gas for them, with the objectives to cut power tariff for end-consumers, reduce reliance on imported fuels and conserve foreign exchange reserves.

The Ministry of Energy (Petroleum Division) was considering reducing the price of permeate gas - a gas that has low burning content, higher amount of sulphur and has no alternative use than flare in the air - “to around Rs5.5-6 per unit from Rs8 at present,” Engro Powergen Qadirpur Limited (EPQL) CEO Shahab Qader said in an interview with The Express Tribune.

Besides, the ministry (Power Division) is working to supply imported gas (liquefied natural gas - LNG) to replace production through expensive high-speed diesel (HSD). “This will bring down the cost of power production by Rs12 per unit to Rs14 (on LNG) from Rs26 (on HSD),” he estimated.

There are about half a dozen IPPs in Pakistan which operate permeate gas-fired power plants under the Power Policy 2002. They have a cumulative installed capacity to produce around 1,500 megawatts of electricity, which comes to around 4% of the total capacity of 37,261 megawatts available in the country.

Foundation Power Deharki is among those asking the government to revise down the permeate gas price. Other IPPs operating on flare gas include Fauji Foundation and Guddu Power Plant, it has been learnt.

“The rationalisation of flare gas price will push up our number (IPPs on permeate gas) in the government’s merit order and place us before those who generate electricity on imported fuels like coal,” Qader said.

“Our plant did not receive power production demand from the government for 301 days over the past 11 years mainly due to … power production by plants running on imported fuel became cheaper.”

On the other hand, production through the plants operating on imported fuels like coal consumed a notable amount of foreign exchange reserves for import of the fuel, he said.

“The under-consideration price rationalisation will reduce the nation’s reliance on imported fuel and save foreign currency reserves.”

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In recent proceedings pertaining to the Indicative Generation Capacity Expansion Plan (IGCEP), the National Electric Power Regulatory Authority (Nepra) member Balochistan also commented that low British thermal unit (BTU) gas should be utilised on priority, while referring to Uch Power Plant in the province, it was learnt.

Pakistan’s economy is overheating due to widening of trade and current account deficits. They negatively impact the country’s balance of international payments.

EPQL has a 217.3MW combined-cycle power plant and commenced commercial operations on March 27, 2010. The electricity generated is transmitted to the National Transmission and Despatch Company (NTDC) under the Power Purchase Agreement (PPA) dated October 26, 2007.

Out of the total 217MW installed capacity, it produces around 110MW using the expensive HSD. The natural depletion of domestic gas reserves, which was expected in 2015 but began in 2018, forced the company to use HSD for the remaining production.

The government, however, is working on a plan to supply imported LNG to replace HSD. EPQL has an estimated life of 25 years, meaning it would remain available for power production for another 14 years, Qader said.

The drop in price of power production through the rationalisation of local gas price and supply of cheaper LNG will be passed on to end-consumers and the measures will carry no impact on profit margins of the companies.

Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) have given the go-ahead for the rationalisation of permeate gas price. The Ministry of Energy (Petroleum Division) approval is awaited.

Similarly, the work on supply of RLNG is also at an advanced stage, but the availability of gas in the system will allow the government to do so.

Published in The Express Tribune, November 30^th, 2021.

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