ISLAMABAD: Pakistan is preparing its strategy to seek a review of the long-term LNG (Liquefied Natural Gas) contract with Qatar, which is due in May next year, ie, 2025, as some days of the year excessive availability of RLNG chokes gas pipelines due to substantial variation in power demand as local industry is unable to consume surplus RLNG because of the recession.
This was disclosed by Chief Executive Officer (CEO) Rihan Akhtar, while responding to a question raised by NEPRA’s Member (Tariff and Finance) Mathar Niaz Rana, during a public hearing on Discos FCA’s adjustment request for the month of May 2024.
CPPA-G has sought positive adjustment of Rs 3.41 per unit, financial impact of which has been calculated at Rs 41.87 billion. It was noted that electricity consumption was 5 per cent less in May 2024 as compared to the corresponding month of 2024 and reference generation.
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In February 2016 Pakistan and Qatar signed a 15-year agreement to import up to 3.75 million tonnes of liquefied natural gas a year from Qatar.
A price review is permitted 10 years after the start of supply. A cancellation option could shorten the deal to 11 years if the parties fail to agree on a new price. A period to build up supply is provided for.
The CEO CPPA-G has claimed that the new FCA will be applicable in the bills of June 2024, when existing FCA of Rs 3.33 per unit will be over which implies additional impact of FCA will be Rs 0.08 per unit.
Member, Tariff and Finance, who is sensitive to non-utilization of imported coal to run the plants, asked CEO CPPA-G to share reasons for preference of RLNG power plants over imported coal power and maximum duration of LNG contracts.
Responding to the questions, CEO CPPA-G stated that operation of RLNG plants is not linked to contracts which are due to be reviewed in May 2025 and Petroleum Division is working a lot on it.
However, the issue of operations of RLNG power plants is entirely different from contracts issue. The requirement of RLNG was projected in January 2024 for June on the assumption that temperature will be 45degrees, dry span and melting heat in May, but on ground situation was different. He said, if a decision is taken to become more conservative in projections, this will result in load shedding in case of unexpected heatwave.
He, however, maintained that the government may have to opt for this option but currently main hindrance in the way of this option is existing contract of LNG, which co0nsists of fixed number of cargoes.
The issue of line pack has also been witnessed in recent months. Chairman NEPRA has sought specific dates of line pack of SNGPL system.
“Petroleum Division is seriously talking with Qatar through diplomatic channels at the highest level. Work is also under progress on revision of long-term LNG contracts,” Rihan Akhtar said adding that from now onward till December 2024 (six months), LNG of Rs 700 billion has to be imported, so everybody is serious.
He argued that government’s concern is not only limited to RLNG supply to the power sector but also for local industry, adding that unfortunately, industry is also running into a deep recession.
NEPRA’s Member (Tariff and Finance) questioned whether the imported LNG under the contracts can be diverted to any other destination as spot cargo.
Chairman NEPRA explained that LNG contracts are back to back i.e. power purchaser, power producer, utility company, LNG imported and supplier on the basis of take and pay.
According to take and pay mode, if power purchaser does not get the cargo and it is sold in the market, differential has to be paid by the Government of Pakistan.
CEO CPPA-G revealed that there is consideration within the government to sell the un-required LNG cargo on the spot market and its differential made part of the cost of consumed cargoes.
The issue of massive unscheduled load shedding even on load shed free declared feeders (10 per cent loss) was raised by Member KPK, Anwar Maqsood Khan who argued that with full operationalisation of imported coal-fired power plants, consumers can be provided some relief instead of just paying for capacity without generation.
Consumers’ representatives maintained that electricity prices are too high, fearing that if current trend of increase in prices continues, the time is not far when people will be on the streets.
Chairman NEPRA explained that apparently there will be stability in prices of electricity in the months to come due to inclusion of projected impact of FCAs and QTAs. These projections have made part of new tariff determinations of Discos.
The issues related to inquiry in coal procurement by Sahiwal power plant, cases lost by the CPPA-G in international courts and their impact on consumers through tariff, financial impact of closure of Neelum Jhelum Hydropower Project were also highlighted during the public hearing.
Copyright Business Recorder, 2024
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