Govt revives take-or-pay conditions

Govt also decided to increase price of fertiliser by 9%, or Rs190 per bag, to cut subsidies

ISLAMABAD:

Ahead of the multi-billion-dollar sale of two power plants to a foreign nation, the government on Wednesday revived the compulsory take-or-pay conditions for the supply of gas and purchase of electricity aimed at making them attractive for buyers.

The government also decided to increase the price of fertiliser by 9%, or Rs190 per bag, to cut subsidies.

Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the Cabinet took these decisions.

“The Petroleum Division tabled a summary on the change in take-or-pay commitments in power purchase agreements and gas supply agreements of three RLNG power plants namely Quaid-e-Azam Thermal Power Plant, Balloki Power Plant and Haveli Bahadur Shah Power Plant,” stated a finance ministry handout.

The government is considering selling the Balloki and Haveli Bahadur Shah powerplants, owned by the National Power Parks Management Company Limited, to Qatar. These plants run on imported LNG.

“In wake of the prevailing international economic conditions, and the unprecedented price hike of RLNG in the international market, and to optimise the utilisation of RLNG for the continued operations of these powerplants, the has ECC approved the Power Division’s proposal,” added the ministry.

The decision was taken to fix the minimum take-or-pay commitment at 33% under the Power Purchase Agreement (PPA) and Gas Supply Agreement (GSA) to guard the interests of both buyers and suppliers.

The ECC allowed the fixation of a Gas Supply Deposit under the GSA at Rs15 billion per power project, lowering it from one-fourth of the committed gas.

These decisions, however, may put an additional burden on electricity consumers as these power plants are at the bottom of the merit order. The decisions are likely to enable the sale of the powerplants to foreign buyers, which the government wants to do to raise funds to avoid sovereign default.

The ECC has reversed an April 2021 decision where the minimum gas supply condition had been waived off. In April 2021, the then-government ended the minimum 66% take-or-pay commitment in the PPA and GSA of the three powerplants. Further, instead of an Annual Production Plan for firm gas commitment, the concept of a Monthly Production Plan binding on the power purchaser and the project companies was introduced with effect from 2022.

Due to expensive LNG, these powerplants have been pushed low on the merit order, currently at around number 18. The commitment to buy at least one-third of the power will cause idle capacity payments.

Expensive urea

The ECC also approved a summary from the Ministry of Industries, on the revision of the price of imported Urea, and allowed for the Dealer Transfer Price (DTP) of the 50 kg imported Urea bags to be fixed at Rs2340 per bag by the National Fertiliser Marketing Limited (NFML), according to the finance ministry.

The decision will result in an increase of 9% or Rs190 per bag in prices at a time when the commodity is not available and hoarders are charging Rs500 to Rs1,000 higher per bag.

Last week, the Pakistan Bureau of Statistics (PBS) reported average market prices for urea fertiliser to be in the range of Rs2,543 to Rs2,678 per bag which is up to Rs238 above the price notified by the private companies.

The ECC was informed that an increase in the price of Imported urea will save around Rs750 million this year.

The ECC also approved increasing incidental charges on the transportation of urea from Karachi port to Rs594 per bag and from Gwadar at Rs1008 per bag, to bring stability to the prices of urea in the market. The ECC further directed that the 50% subsidy on imported urea should be shared by the provinces.

Another summary from the Ministry of Industries and Production considered was on the provision of funds to the Heavy Electrical Complex (HEC) to release the markup amount to the Bank of Khyber (BoK). After discussions, the ECC approved a grant worth Rs81 million to the HEC, directing the company to complete the transaction by February 15, 2023.

The Ministry of Railways submitted a summary of its business plan to generate a decent source of earnings by laying fibre optic cables along its infrastructure. The ECC constituted an inter-ministerial committee comprising of federal secretaries from all relevant divisions, headed by the federal minister for law and justice to prepare a draft Right of Way Policy on the issue.

The ECC was informed that unless new sources of revenue generation are identified, reliance on the government’s subsidy will keep growing. A proposal to relax the rules of earning additional money was not accepted by the ECC.

Published in The Express Tribune, January 12^th, 2023.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.