Power Division seeks to release LNG plants from fuel offtake commitments

In a major move, the Power Division is seeking an end to the existing minimum guaranteed annual Liquefied Natural Gas (LNG) offtake to facilitate privatisation of $2 billion power plants in Punjab amid strong resistance from state-owned oil and gas companies.

Top government officials confirmed to media that three major oil and gas suppliers - Sui Northern Gas Pipelines Ltd (SNGPL), Sui Southern Gas Company Ltd (SSGC) and Pakistan State Oil (PSO) - have put on record in recent meetings that they would not remain financially viable entities as their entire LNG supply chain from Qatar to end consumers was based on guaranteed offtakes.

This comes after an estimated investment of about $7bn on the LNG supply chain infrastructure. The basic premise of LNG imports over the past decade had been to reduce import bill through substitution of expensive furnace oil, increase power sector efficiencies and lower carbon emissions.

As a result, more than 80 per cent of total LNG imports were consumed by the power sector. The total infrastructure investment included about $5bn on four LNG power plants in Punjab, more than $1bn on LNG pipeline network, another $1bn two re-gassification terminals.

The Power Division has now suggested three options in a draft summary to the Economic Coordination Committee (ECC). Under the first option, it has proposed "to withdraw the existing minimum guaranteed offtake of 66pc on annual basis". Accordingly, the annual production plan shall continue to be provided without any minimum guaranteed offtake of 66pc and this shall be reflected in the revised Power Purchase Agreement (PPA), Gas Supply Agreement (GSA) and Implementation Agreement (IA) to be executed for the purpose of privatisation of National Power Parks Management Company Limited (NPPMCL).

The NPPMCL is a subsidiary of the Power Division and the owner of Haveli Bahadur Shah and Baloki Power Projects of 1320MW each. The second option entails two further choices in case the government is contractually bound to adhere to the PSO agreement with Qatar Gas till the year 2025. The first choice is to withdraw the existing minimum guaranteed off-take of 66pc immediately after the review period of PSO agreement with Qatar Gas in 2025.

However, a change should be incorporated in the revised PPA, GSA and IA to be offered for privatisation to ensure that SNGPL to follow National Power Control Centre's instructions pertaining to diversion of unutilised RLNG and such instructions shall take precedence over any other LNG supply arrangement of SNGPL with any power sector project operating on RLNG on 'as and when available basis'.

The second choice under this option is that till 2025, the difference of the RLNG requirements for these two power plants as per economic merit order principle and the RLNG requirements for minimum 66pc guaranteed offtake should be utilised by other sectors.