ECC preview: Who is to pay the Rs736 million gas outage cost?

Gas suppliers, power producers likely to thrash it out in mediation.

ISLAMABAD:

In a busy day, the top economic decision making body is expected today to ask gas provider and independent power producer to settle the dispute through mediation, ease tax for Swede Bus Pakistan, decide what to do with surplus wheat and endorse Rs14.6 billion bailout package for Pakistan Steel Mills.

While Ministry of Water and Power and Ministry of Petroleum go at each other over Rs736.8 million losses claimed by Independent Power Producers (IPPs) incurred due to gas curtailment, the Economic Coordination Committee (ECC) of the cabinet may opt to resolve the issue through joint expert mediation between the parties.

Ministry of Water and Power has proposed in a summary that the gas provider Sui Northern Gas Pipeline Limited (SNGPL) should bear the loss of Rs736.8 million incurred by IPPs on account of inadequate gas supplies due to preferential treatment given to industrial consumers.

However, the petroleum ministry has strongly opposed the proposal saying that force majeure event was declared by SNGPL in line with the provisions of Gas Sales Agreement (GSA) between SNGPL and IPPs. The law division has supported the proposal to resolve the issue through Joint Expert Mediation between the gas supplier, power purchaser and IPPs.

IPPs have claimed a loss of Rs735.87 million on account of deduction by power purchaser due to failure to provide the agreed amount of electricity. According to the break-up, Orient power plant faced a loss of Rs234.27 million, Saphire Rs251.60 million and Rs250 million by Saif due to deduction during February to May 2011.

The four gas-based IPPs namely Saif, Saphire, Orient and Hamore with combined generation capacity of 842 megawatts were set up as per the policy for power generation projects 2002. An aggregate of 152 million cubic feet gas per day (mmcfd) gas through SNGPL was allocated to the four by ECC in 2004. This allocation expired on June 30, 2011 following which ECC on June 30, 2011 approved gas allocation of 76 mmcfd till November 30, 2011.

The gas supplier on February 28, 2011 claimed force majeure event under the Gas Sales Agreement owing to its inability to supply gas to the projects due to rupture of pipeline supplying gas from Zamzama gas field and terrorist activity at Maramzai gas field.

The gas supplier modified arrangement and reduced supply to 31 mmcfd against minimum daily quantity of 38 mmcfd till resumption of normal supply from Maramzai gas field. The force majeure was lifted by the gas supplier on May 11, 2011 and full supply of gas was restored to each of the four power producers. Due to this gas curtailment, the power producers were unable to dispatch their full output and capacity payments were reduced by the power purchasers.

The Ministry of Water and Power informed that sponsors of the projects are agitating that the gas supplier, in breach of contract, has failed to supply contractually assured minimum daily quantity of gas whereas at the same time other industrial consumers were supplied gas in preference without any binding commitments and obligations. The power project sponsors argue that any reduction in capacity payments due to non-availability of gas shall have adverse impact on debt servicing which may ultimately lead to default.

Meanwhile, the Revenue Division has proposed the ECC to waive off sales tax at import stage for Swede Bus Pakistan (Pvt) Limited.

Also on the agenda is what to do with 1.2 million tons of wheat stock piled up with Pakistan Agricultural Storage and Services Corporation. Pakistan is negotiating a barter trade deal with Iran to export one million tons of wheat and due to different issues between the two countries, the export has been delayed.

ECC is also expected to endorse the Rs14.6 billion bailout package for Pakistan Steel Mills, allocation of gas from the latest finding in Tal Block’s Makori field and allocation of gas from Oil and Gas Development Company’s NIM West field to Sui Southern Gas Company.

Published in The Express Tribune, July 24^th, 2012.