The article, 'KESC Owes Rs 20bn to SSGC', published by Business Recorder on Thursday, August 19, 2010, not only contains factual inaccuracies. Karachi Electric Supply Company (KESC) strongly rebuts the statements attributed to analysts/sources contained in the news item.
It is important to note that KESC has paid Rs 52 billion to SSGC since September 2008 against its purchases of Rs 56 billion during the same period with Rs 7.1 billion paid during the last three months alone. Furthermore, KESC is willing to sign a Gas Supply Agreement (GSA) with SSGC and has made a concerted effort to expedite GSA negotiations. GSA signing is in KESC's best interests as it will stabilise the Company's gas supply.
At present, SSGC is supplying approximately 210 mmcfd of gas versus an allocation of 276 mmcfd. Coupled with declining gas supply, KESC's working capital is severely strained as dues from the Government of Pakistan (GOP) and related sovereign entities including 'Strategic Customers', various federal/provincial bodies have accumulated to Rs 44 billion. In addition, nearly Rs 30 billion is outstanding in receivables from the general public.
Non-payment of GOP dues has a significant impact on KESC's liquidity. Notwithstanding non-payment of GOP receivables and the fact that KESC is charged interest on its payables while it receives no interest from GOP receivables, KESC has been making payments to NTDC, SSGC, PSO, and other IPPs; since September 2008, KESC has made payments of Rs 157 billion to these entities.
Circular Debt is the primary issue hampering liquidity across the oil and gas and power sectors. Various solutions are often discussed to holistically resolve this issue but their implementation is often found lacking. For example, an offset mechanism between KESC's SSGC payable and KWSB receivable (of over Rs 10 billion) was agreed in a meeting chaired by the then Finance Minister and the Minister of Water & Power (February 2010) to discuss the circular debt problem.
The same mechanism has been applied to the payable to NTDC whereby the tariff differential claim owed by the MOF to KESC is directly paid to NTDC. KESC has already signed contractual agreements with other suppliers including a 5-year Power Purchase Agreement (PPA) with Wapda and a 10-year Fuel Supply Agreement (FSA) with PSO.
In regards to a GSA, KESC is willing to provide a Letter of Credit (LC) to SSGC as well even though it does not receive any LCs from its customers. However, KESC is firm that the conditions of the GSA must be mutually agreeable to both parties; at the very least, minimum volume and pressure requirements need to be defined so that consistent power supply can be provided to Karachi's consumers. At present, SSGC maintains ad hoc power supply to KESC, which leads to tripping of power stations and increased reliance on furnace oil, which has a significant impact on the consumer end tariff (furnace oil is 2.5 times more expensive than gas).
KESC's furnace oil consumption, in the last six months, has increased to about 450,000 tons, representing a 45 percent increase from the same period last year. It is estimated that every 25 mmcfd reduction in gas supply leads to an increase of Rs 0.5/kWh in the consumer tariff. To maintain a reasonable tariff level, KESC requires at least 300 mmcfd of gas.
Comments
Comments are closed.