Power projects: 800MW LNG plants too big to implement, say investors

Regulator asked to announce separate tariffs for 250, 400 and 800-megawatt plants.

ISLAMABAD:

Investors in the power industry have expressed their inability to develop 800-megawatt LNG-based power plants in Punjab and want the regulator to announce upfront tariff for smaller projects.

They also said that it would be difficult to undertake work on LNG-fired plants without a gas supply framework document.

Speaking on behalf of the Khyber-Pakhtunkhwa government at a public hearing held by the National Electric Power Regulatory Authority (Nepra) to determine upfront tariff for LNG-based plants, representatives of the power industry said that the proposed projects with 800MW generation capacity were too big to implement.

“Setting up of LNG-based power plants should not be specific to one province. The entire country should be opened for investors to set up LNG power plants,” said Khyber-Pakhtunkhwa Oil and Gas Company Chief Executive Officer Raziuddin during the hearing.

He added that though it was not clear as to who will bring LNG to Pakistan and on what price and guarantees, burdening project sponsors is not a very good idea, he said.

Planning Commission’s former member energy Shahid Sattar said that no LNG-based power plants would work unless the circular debt issue is resolved. “The assumed price of LNG at $12 per million British thermal units (mmbtu) is higher than the existing price of $7 per mmbtu,” he pointed out.

“The regulator should announce a three-tier power tariff for 250MW, 400MW and 800MW LNG-based plants,” suggested a representative of General Electric (GE).

He said that the efficiency rate of 250MW combined cycle plant was 52% to 53%, for 400MW plant it was 56% and for 800MW it was 58%.

Representative of Pak Gen Power Plant Farhan Lodhi said that the government should announce upfront tariff for small power plants with 250MW generation capacity. “It would take six months to achieve financial close and 12 months for implementation. But 800MW power plants are too big and would take around 20 months for implementation,” he said.

According to Lodhi, the proposed per megawatt cost of $1.1 million was on the lower side and it should be set at $1.2 million.

The proposed internal rate of return (IRR) at 15% was also on the lower side, which should be at 17% to encourage investors to install 3,600MW power plants in the load centres of Punjab. No party had land-based storages for LNG and use of alternative fuel should be allowed, they added.

Other interveners said that the government should guarantee the supply of LNG to power plants and that the project sponsor would have to open Escrow account worth $34 million. This amount should be treated as equity for the rate of return.

According to the petition to be taken up by Nepra, the government will introduce a separate mechanism with the opening of one-month Escrow account worth $34.49 million to pay for LNG import and shield it from circular debt.

During the hearing, Nepra will decide whether the $12 per mmbtu LNG price and the cost of Escrow account were justified. It will also assess 15% IRR and 1.35% insurance cost of the engineering, procurement and construction (EPC) contract.

The developments come in the wake of the government’s plan to replace existing furnace oil-based plants with LNG-run plants in an attempt to reduce the cost of power generation. The government desires to set up 3,600MW LNG-based plants in Punjab in order to ease prolonged outages.

The regulator would announce upfront tariff after taking into accounts all suggestions and comments.

Published in The Express Tribune, February 24^th, 2015.

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