Allowing IPPs to buy fuel from ‘any OMC’ irks PSO

ISLAMABAD: Pakistan State Oil (PSO), the state-owned fuel supplier, is annoyed with Central Power Purchasing Agency- Guaranteed (CPPA-G) for allowing two Independent Power Producers (IPPs) to purchase their fuel from any Oil Marketing Company (OMC).

PSO’s General Manager, Consumer Business, Ghulam Murtaza Shaikh, has conveyed the company’s anger in a letter to Chief Executive Officer (CEO), CPPA-G, seeking rectification of decision. The copy of letter has also been sent to Secretary Petroleum and other relevant authorities.

PSO’s letter is with reference to the Court Orders of June 29, 2022 passed by the Lahore High Court in pursuance of the two separate PPA Amendment Agreements both of April 20, 2021 executed between Central Power Purchasing Agency- Guaranteed (CPPA-G), Pakgen Power Ltd. (Pakgen) and Lalpir Power Ltd. (Lalpir), respectively. Both the IPPs and CPPA-G are parties to these agreements.

PSO maintains that upon review of the PPA Amendment Agreements, it appears that the parties have mutually agreed to allow IPPs to procure fuel from other OMCs as well.

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According to PSO, PPA Amendment Agreements have been executed between the parties pursuant to the award of December 18, 2020 passed through arbitration conducted under the International Chamber of Commerce Rules of Arbitration, in favour of the IPPs, declaring inter-alia that there is no obligation on the IPPs to purchase residual fuel oil from PSO alone.

PSO has highlighted that earlier the Govt. of Pakistan (GoP) entered into separate Implementation Agreements with the IPPs of September 24, 1994 (Implementation Agreements) whereby PSO was declared as a sole fuel supplier to IPPs. In terms of the Implementation Agreements, Power Purchase Agreements were executed between Water and Power Development Authority (WAPDA) and Pakgen and Lalpir on September 05, 1995 and November 03, 1994, respectively whereby PSO was defined as a sole fuel supplier to the IPPs.

The state-owned fuel supply company has maintained that based on the exclusivity given to it as a sole fuel supplier, Pakgen and Lalpir entered into the Fuel Supply Agreements on September 07, 1995 & November 06, 1994, respectively, with PSO in terms whereof the IPPs have to purchase fuel, diesel oil, lubricants, and greases from PSO.

PSO has further argued that the IAs, PPAs and the FSA are inter-linked with each other forming part of a complete supply arrangement. Accordingly, the FSAs are interlocked with the PPAs. Thus the amendment/ decision related to one agreement would lead to corresponding impact/ changes in the other agreements, as well. Therefore, PSO being one of the key parties and stakeholder of the said supply arrangement should have been engaged, informed and taken into the loop of the amendments made in the PPAs through PPA amendment agreements.

The fuel supplier said that in terms of the FSAs, PSO has made huge investments, particularly in terms of fuel oil storages, operational facilities and logistic to ensure timely fuel oil supplies to the IPPs as per the requirement forwarded by the Ministry of Energy (Power Division) and the monthly forecast given by the IPPs irrespective of the operation of the plants.

“PSO has to maintain the stocks inventories and facilities in order to make the fuel oil supplies available to the IPPs as per terms of the FSAs despite low/ non-upliftment by the IPPs. Therefore, the amendment in the PPAs through PPA IA is directly affecting PSO’s investments and the company is incurring significant losses due to low/ non-upliftment of fuel oil by IPPs against their entire fuel oil demand,” said, Ghulam Murtaza Shaikh.

After explaining the entire scenario, he has requested CPPA-G to understand its position and take appropriate measures so that the IPPs should be encouraged to uplift their entire fuel requirements from PSO.

Copyright Business Recorder, 2022