Govt & Power Division at Odds After Relieving A Contract Obligation of 3 Mega-Powerplants

The federal cabinet has favored the decision of withdrawing the stipulation of “minimum 66% purchasing commitment of RLNG (re-gasified liquefied natural gas) from Sui Northern Gas Pipeline Limited (SNGPL) and Pakistan State Oil (PSO) for 3 Punjab-based major power plants.

Reportedly, the said decision has been made in the interest of earning better privatization yields and to reduce the power sector liabilities of over Rs. 2.15 trillion.

As per media reports, the decision was taken in a meeting between the members of the federal cabinet and the Cabinet Committee on Energy (CCoE). The meeting was headed by Prime Minister Imran Khan, where a consensus was reached by the participants to relieve the 3 powerplants based in Punjab.

In the meeting, the cabinet demanded that the power division provides a year-long Consolidated Annual Production Plan (CAPP) for the 4 major Government Powerplants (GPPs). The cabinet reportedly informed the power division that, in case of any downward deviation from the production plan, the power division shall be subjected to a net proceed differential.

Reportedly, the power division had suggested an alteration in the contract structure of the LNG-based GPPs to make electricity cheaper and minimize the circular debt build-up by a significant degree. The power division further informed that the GPPs are considerably more expensive than other power sources such as local coal, local low pipeline quality gas, and imported coal owing to a host of operational complexities.

The power division added in a direct official statement that:

If these trends in prices, as well as current load forecast, remain unchanged, the existing minimum guaranteed off-take of 66% for three re-gasified liquefied natural gas (RLNG) plants would yield in the loss of approx Rs. 143 billion up to 2023,

The petroleum division has expressed their reservations about the decision and has gone on record to state that without a budgeted subsidy, the said ruling would, “simply transfer the circular debt from power division companies to petroleum division companies and in fact, increasing the debt as a result”.

The petroleum division also pointed out that the said decision could result in more losses than savings, as the entire demand and supply dynamic between the LNG chains and their consumers would be terribly disturbed.

The federal cabinet still remains with their decision to relieve the 3 major GPPs of the LNG purchases and has instructed the petroleum division to take all the mitigative measures to cope with the situation in a favorable fashion.