Power to the people: Proposal to increase gas tariff for captive power

Officials discuss plans increase gas supply to mainstream electricity generation.

ISLAMABAD:

In a bid to lower power tariffs and load-shedding for consumers, officials are mulling over plans to increase gas tariff for captive power plants (CPPs) in order to divert more gas to commercial electricity generating units. The proposal calls for a 150 per cent raise in gas prices for CPPs, commensurate with power utilities’ industrial tariffs, in order to motivate them to buy electricity directly from power distribution companies (DISCOs).

CPPs – plants that generate electricity for the sole use of their owners – are presently charged tariffs that cost them Rs6 for every unit of electricity produced, much lower than the industrial rate offered by power utilities.

According to statistics, the power sector (Water And Power Development Authority (Wapda), Karachi Electric Supply Company (KESC) and independent power producers) consumed around 44 per cent of total gas supply in 2005; this share fell to 28 per cent by 2011 due to the mushrooming numbers of CPPs.

“Gas availability declined by almost nine per cent per annum for power generation purposes during the period,” said officials of the ministry of water and power; adding that the shortages had to be met through the import of furnace oil which cost an annual sum of Rs700 billion.

This reduction in total share was in spite of the fact that gas supplies rose by around two per cent annually during the same period, and power sector demand rose by almost five per cent annually.

The gas supply shortfall to the power sector, due mostly to CPPs, has resulted in higher power purchase prices – forcing the government to subsidise the rates through price differential claims worth Rs300 billion annually, according to officials.

Officials said that CPPs were neither licenced, nor obligated to adhere to any policy related to the governance of the power sector. They generate electricity for self consumption, or at times sell it to their affiliates. They put a further strain on DISCOs as well as they use them as backup to their own means of generating electricity.

As per estimated statistics, gas to CPPs through the SSGC/SNGPL network drains the National Transmission Despatch Company (NTDC) by over 1000mmcfd. The drain on SSGC’s network, which impacts the KESC, is beyond 250mmcfd. This drain, if reversed, is sufficient to add 4,000 megawatts to the national grids on the cheapest rates possible with fossil fuels.

“If gas allocated to CPPs is provided to the power sector, over Rs500 billion in benefits can be passed on as savings to consumers and the national exchequer,” an official said.

Other proposals discussed in the meeting include a recommendation that the government direct gas utilities to allow a comprehensive internal audit by an independent auditor regarding the implementation of the conditions laid down in the Gas Allocation and Management Policy 2005.

The empowerment of DISCOs to disconnect all industrial, commercial and bulk customers that use them as a backup to their own means of power generation, or are involved in any violation of rules and regulations, was also proposed. After disconnection of such entities, pending industrial users could be granted new connections from spared capacity.

DISCOs have been directed not to procure any surplus power in the future from CPPs that use gas or furnace oil as fuel for electricity generation. However, DISCOs will be encouraged to sign power acquisition contracts with CPPs that use coal or renewable energy for their purposes.

Published in The Express Tribune, February 22^nd, 2012.