Despite strong resistance from Oil Marketing Companies (OMCs), Pakistan Electric Power Company (Pepco) has agreed in principle to sign fuel supply agreement with Pakistan State Oil (PSO) for power generation plant Genco-III located at Muzafargarah and the two sides will ink the agreement Wednesday. The Genco -111, located at Muzafargarah with a power generation capacity of 1350 MW, requires 7,000 tons of furnace oil daily to operate at 100 percent capacity.
Under the agreement, PSO will meet the full requirement of furnace oil of Genco -III for power generation. PSO provided 1.2 million tons furnace oil to Genco -III, Muzafargarah, last year. Sources said that Pepco and PSO had concluded the modalities of fuel supply agreement for Genco-111 located at Muzafargarah and the two sides are also negotiating to conclude fuel supply agreements for Jamshoro and Gudu power plants.
All other 11 marketing companies have opposed the fuel supply agreements and are pressing the government to force PSO and Pepco not to ink the accord, which they consider would deprive them of their market share. However, the sources said that PSO had captured 85 percent market share and despite piling up of receivables against the power sector, it had been providing fuel supply for power generation.
They argue that the OMCs, opposing the fuel supply agreement, have not yet developed the necessary infrastructure and do not have the capacity to meet furnace oil requirements of the power sector. "PSO receivables had accumulated to Rs 94 billion on Tuesday and despite such financial crunch, PSO is supplying fuel to power sector without any interruption," the sources said, adding that in July 2009, other marketing companies had stopped providing fuel supply due to circular debt.
They further said that the OMCs were not interested in entering into fuel supply agreement at that time, but now when the government was committed to resolving the issue of circular debt, they were creating hurdles. With the new independent power producers (IPPs) and rental power plants by the end of the current calendar year, the country's furnace oil requirements for power sector would increase and PSO would have to develop the infrastructure that would cost around rupees six billion. "Other marketing companies do not have the capacity to supply over 2,000-5,000 tons furnace oil daily to the power sector," said the sources.
Due to absence of fuel supply agreement, PSO had to defer orders of 0.2 million metric tonnes of oil during May and June as the Gencos failed to lift the required furnace oil stock. With the fuel supply agreement, PSO will be able to maintain fuel supply chain for power sector. The new IPPs have agreements with other OMCs like Shell etc for furnace oil supply, but the Gencos, located in Muzaffargarah, Faisalabad and Jamshoro, have no agreements with PSO for fuel supply. These Gencos get fuel supply from PSO through tenders.
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