LAHORE: Electricity produced from Liquefied Natural Gas (LNG) would add to the problems of the power sector, as the cost of production would be higher than the one incurred with the use of furnace oil.
This was stated in a report issued by the Institute of Policy Reforms (IPR), highlighting the impacts of LNG import for power generation to the economy.
“The government should learn lessons from past mistakes,” the report advised.
So far, little is known about the import price of LNG. However, based on the estimated price paid for the recent import of 147,000 cubic feet, the cost of power produced from LNG would be higher than that produced from furnace oil.
The National Electric Power Regulatory Authority (Nepra) recently determined upfront tariff based on imported LNG. It assumed $12 per mmbtu for imported LNG, a price higher than the present cost of power from furnace oil.
In its report, IPR also questioned the need for the government to seek upfront tariff from Nepra. Upfront tariff guarantees return to investor, but does not require them to meet any efficiency or productivity criteria. The parameters for the power plant remain open.
“All costs are passed on to the consumer while the power producer receives an assured return,” says the report. ”Upfront tariff also does not require the investor to come through a competitive process.”
The report also said that relying on imported LNG was no different from what took place under the 1994 power policy. That policy brought about a change in the fuel mix from hydropower to thermal power and gave extensive comfort to the investor. Upfront tariff was part of the 1994 policy.
The core problem with the present power sector is its high cost of production because of high reliance on furnace oil. To overcome this, government must seek lower cost solution and not the ones that add up to the cost.
Government must also set right the many governance issues that hobble power supply, the report suggested.
IPR estimates that about 30% of the sector’s revenue is lost at the distribution stage. There are inefficiencies also with transmission and distribution of power. Tariff policy is skewed and circular debt uncontrollable. Almost every unit of power generated carries a subsidy. New generation also would face all of these issues and the sector would resultantly continue to underperform.
The report opines that reducing the suffering of the people and stimulating economy must be at the heart of any new initiative by the government. It counsels government to set the power sector house in order.
For immediate relief to the people, it must increase allocation of domestic gas for power production. This will reduce cost and increase generation by bringing in capacity that cannot operate presently for want of gas. Government must take administrative measures to reduce DISCO losses.
At the same time, it is necessary to look holistically at the power sector and reform the flawed policy, the crumbling structure, and broken governance. Increased power at high cost from imported LNG should not be a priority, concluded the report.
Published in The Express Tribune, April 14th, 2015.