Pakistan is once again facing prolonged power outages amid the scorching heat. This is partly happening due to the previous PTI government’s failure to set up new power plants on local coal on time and sign long-term contracts with the global suppliers of LNG when it was available at cheaper rates in the range of $3 to 5 per mmbtu in mid-2020.
These remarks were made by the current Pakistan Muslim League-Nawaz (PML-N) led government in a statement.
Besides, the frequent blackouts are partly occurring due to a spike of 300% in fuel prices in the local and global markets over the past 18 months including furnace oil, liquefied natural gas (LNG) and coal.
More importantly, the sharp depreciation of 30% in the rupee value in the past one year and the accumulated circular debt have badly impacted the working capital of energy firms, while the downgrading of Pakistan’s credit outlook to negative from stable forced global banks to deny facilitating the import of energy by the domestic firms.
The current coalition government said that two projects namely Karot hydroelectric power and Shanghai Thar were delayed – first on account of lack of ownership and project monitoring, and second because of failure to fulfill the contractual commitments to the already completed projects, thus delaying financial close.
The Pakistan Tehreek-e-Insaf (PTI) government failed to open a revolving account for the completed projects like Sahiwal Coal and Hub Power that would have provided further financing for the energy sector under the CPEC umbrella, it said.
“Previous government either did not understand CPEC’s energy framework or was simply out there to strangle it to slow but sure death.”
Likewise, another high-efficiency project namely Punjab Thermal RLNG Power Plant at Trimmu, Jhang (1,263 megawatts) has been delayed for more than three years.
“Had these three projects (3,200MW) been completed on time, load-shedding would not have been witnessed in urban Pakistan despite high energy prices in the international market,” the current government claimed.
“Two of these do not need any imported fuel and the third is high-efficiency LNG plant (more than 60%), which is much more feasible than the plants based on imported coal or residual fuel oil.”
There has been lack of planning to execute long-term contracts for purchasing LNG.
During Covid-19 (mid-2020), the LNG prices went far lower in the international market, but that opportunity of buying LNG at $3-5 per million British thermal units (mmbtu) was not availed by the then government and no long-term contract was entered into at that stage. “If such a contract had been signed, the consumers would have faced much lower electricity bills,” it said.
Rupee depreciation, circular debt
The circular debt stock in June 2018 was at Rs1,152 billion, which increased to Rs2,467 billion in March 2022, an increase of 114%, despite major injection out of the taxpayers’ money.
One of the major causes of this rapid rise in circular debt is the depreciation of the rupee from Rs115 per dollar to Rs185 per dollar when the PTI government was sent packing in April, the coalition administration said.
The rise in circular debt has affected the government’s ability to pay privately owned power plants in a timely fashion which, in turn, has piled up liabilities of coal power plants and dried their credit lines.
Three major power plants on coal (total capacity of 3,900MW) have such low stock of coal that they are running on part load. “In case of one coal power plant, the coal is stuck at Karachi Port because it has no money to clear the imported stock.”
Fuel prices up
The furnace oil price spiked to Rs128,210 per ton in April 2022 compared to Rs60,840 in December 2020, according to the available data.
Similarly, the re-gasified LNG price shot up to Rs2,671 per mmbtu in April 2022 compared to Rs925 per mmbtu in December 2020.
Coal (HSR) price rose to Rs53,777 per ton from Rs18,907 per ton, while coal (PQ) price increased to Rs36,507 per ton in April compared to Rs10,277 per ton in December 2020.
Oil, RLNG supply
Despite all odds, the current government said, the Petroleum Division has been playing its role for arranging RFO (furnace oil) requirements as per demand placed by the
Existing RFO stocks available with the oil industry (OMCs and refineries) as of June 30, 2022 are 277,000 tons, whereas two RFO cargoes of 130,000 tons are off port at present.
Import of around 180,000 tons is planned for July 2022. Thus, the above arrangements are sufficient to meet the demand for 436,000 tons placed by the Power Division for July 2022.
Pakistan LNG Limited (PLL) has floated a new tender for the procurement of 10 LNG cargoes for delivery from July 2022 to September 2022. The tender will close on July 7, 2022.
It is hoped the gas supply to power plants will improve substantially and reduce the duration of power outages soon.
Pakistan State Oil (PSO) and PLL are engaged in import of LNG. Under the executed LNG supply contracts with Qatar Petroleum/ Qatar Energy, PSO imports seven LNG cargoes whereas PLL is left with one LNG supply contract with Eni as the other supplier, ie Guvnor prematurely terminated the contract in April 2022 following a series of consistent default on supply of cargoes since the year 2021.
Starting from July, PSO has managed to secure one LNG cargo from Qatar, the delivery of which is scheduled for January 2023.
During the ongoing tenure of the government, spot purchasing of LNG was made starting April till June 2022 for enhanced RLNG supplies to the power sector, it said. The cost of spot LNG purchases during May to June 2022 was $573 million.
Despite PSO and PLL facing huge receivables towards SNGPL and power sector, the supply to power producers was made to the maximum extent possible. PSO’s shortfall in LNG payments as of June 2022 was Rs285 billion whereas PLL’s receivables stand at Rs119 billion.
In order to ensure zero load-shedding during the Eidul Fitr break, the RLNG supply to fertiliser plants, CNG stations and industry was curtailed for enhanced supplies to the power sector.
Supply to the CNG stations continues to remain curtailed whereas the supply to captive power (export) is restricted at 50% of their load as of June 30, 2022.
The RLNG supply has been fully curtailed to captive power (export and non-export) for supply to the power sector during July 1-8, 2022.
For the procurement of LNG, PLL was granted exemptions from PPRA rules on May 28, 2022 for July 2022 onward delivery cargoes. Accordingly, PLL started procurement of July 2022 cargoes after that date with three tenders closing in June 2022,the government said.
Published in The Express Tribune, July 4th, 2022.
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