FRIDAY MARCH 30: GSA violation: three IPPs blame government for Rs 736 million loss

ISLAMABAD: Three Independent Power Producers (IPPs) have accused the government and Sui Northern Gas Pipelines Limited (SNGPL) of inflicting on them financial loss of Rs 736 million by suspending gas supply in violation of Gas Supply Agreement (GSA), well informed sources in PPIB told Business Recorder. The details of the loss are as follows: Rs 234.27 million for Orient, Rs 251.6 million for Sapphire and Rs 250 million for Saif Power.
In pursuance of Power Policy 2002, four gas-based IPPs namely Saif, Sapphire, Orient and Halmore with a cumulative capacity of 842 MW have been set up and are in commercial operation. An aggregate of 152 mmcfd, of pipeline quality gas through SNGPL system was allocated to the projects in 2004 on nine month firm basis and pursuant to the terms and conditions of the GSA, the gas supplier is obligated to supply a minimum daily quantity of 38 mmcfd to each of the projects. The gas allocation expired on June 30, 2011. The project agreement provides for the option to operate on High Speed Diesel (HSD) during available gas period. The matter was approved by the ECC in its meeting held on June 30, 2011, with a firm gas allocation of 76 mmcfd to the projects till November 30, 2011.
"The position of three projects - Saif, Sapphire and Orient - is very clear; since SNGPL and GoP diverted the gas and SNGPL wrongly claimed force majeure, the withheld capacity payments should be reimbursed either by one or both of the entities," the sources quoted Chairman Independent Power Producers Advisory Council (IPPAC), Abdullah Yousuf, as stating in a letter to the Managing Director, PPIB.
The federal cabinet has recently considered a summary titled "reduction in capacity payments to IPPS during February 2011 owing to gas supply curtailment by SNGPL" and decided to send it back to the Economic Co-ordination Committee (ECC) of the Cabinet. Ministry of Water and Power has presented the two following options to the cabinet on this issue: (i) The audited loss of capacity payments as substantiated and incurred by the IPPs on account of inadequate gas supplies by be compensated by SNGPL; or (ii) the issue of determination and payment of lost capacity incurred by the IPPs to be resolved through "Joint Expert Mediation" between the gas supplier, power purchaser and IPPs.
"We are extremely disappointed that even after one year nobody in government is taking this matter seriously," the sources quoted the IPPs as saying in their letter. Insiders claim that top brass at the government offices deliberately terminated supply to four IPPs just to divert this gas to their "special friends" in the textile and fertiliser sectors.
A former Minister for Petroleum and PML-N stalwart Khawaja Muhammad Asif recently accused some of the PPP ministers of receiving up to Rs 50 million to supply gas to specific "sectors". IPPAC claims that Saif, Sapphire, Orient and Halmore Power are the most efficient plants in the country with fuel efficiency of 51.2 per cent on gas whereas other older IPPs and Gencos have efficiencies in the range of 25 per cent to 37 per cent.
The tariff regime adopted by the GoP is one of cost plus model, which implies that Nepra allows recovery of costs but then puts a cap of 15 per cent on Return on Equity (RoE). Therefore if come cost is disallowed investors never get their return and rather run into losses since they have to pay out of their pockets.
IPPAC argues that GSA has a 'take or pay' provision whereby if the IPPs do not take gas when they are supposed to they still pay damages, and if the supplier does not deliver, it has to compensate the IPP. These four IPPs paid over Rs 2 billion of 'take or pay' to SNGPL when they could not take gas because of various reasons in 2009-2011.
These plants were allowed daily 38 mmcfd gas till June 30, 2011 by GoP to be supplied by SNGPL through its pipeline network. The gas allocations, approved by the ECC assured firm commitment of gas to these IPPs for 9 months in a year including March-May 2011.