1263.2MW Trimmu plant: Government may sign GSA & PPA on 'as available' basis

The government is likely to sign Gas Supply Agreement (GSA) and Power Purchase Agreement (PPA) on 1263.2 MW Trimmu on "as available" basis instead of "take or pay" basis to avoid financial burden.

Sources close to Special Assistant to Prime Minister on Petroleum, Nadeem Babar, revealed that various meeting on the Trimmu plant Gas Supply Agreement (GSA) and Power Purchase Agreement (PPA) have been held which were presided by Minister for Petroleum and Power and the last meeting was presided over by Dr Ishrat Hussain, Prime Minister Advisor on Institutional Reforms and Austerity.

According to an analysis provided by Prime Minister's Special Assistant on Petroleum Power Division if the Trimmu plant is supplied RLNG on a firm basis and is obliged to have 66 per cent "take or pay" as was the case in the previous three gas power plants (3GPPs) and in compliance with the ECC decisions in this matter, then it will have to pay Rs 202 billion between now and 2025 compared to other cheaper sources of electricity available.

Power Division has further taken the position that in light of this projection, it is not in a position to sign PPA with 66 per cent "take or pay" and proposed to sign PPA ( and similar GSA) only on as " available basis".

In a letter to Secretary Power, Irfan Ali, Nadeem Babar said that Power Division argues that shifting the burden to Power Division via the Trimmu plant will cost more compared to parking it under "take or pay" in the Petroleum Division and let it mitigate the source, just like it has been doing for the last three to four years.

Babar further argued that while it is to be understood that Petroleum Division was directed to sign up long term agreements for LNG for 800 mmcfd, which are all "take or pay" as per international market practice for supplying LNG to the 3GPPs already signed up plus Trimmu as the fourth GPP, it is also true that this 800 mmcfd is being brought into Pakistan for the last several years and being resold, with only the 3GPPs having 66 per cent "take or pay" contracts.

Recently, the Cabinet reaffirmed its earlier decision that the 3GPPs will continue to bear the risk of price differential for gas not taken by the 3GPPs, if diverted to other sectors, based on the 66 per cent "take or pay" on LNG. This quantity translates to "take or pay" obligation of 366 mmcfd( i.e. 66 per cent of 3x185).

"While having signed the "take or pay" agreement with the suppliers on the GoP direction in the past on the understanding that it will be having a total of 488 mmcfd of take or pay commitments from power off-takes (3GPPs plus Trimmu) and manage the rest through other sectoral demand, the Petroleum Division understands that burdening the power consumer with Rs 202 billion of additional cost until 2025, after which contracts have price-re-openers may not be in the larger national interest," he added.

Petroleum Division, Nadeem Babar said will take mitigation measures to sign up LNG sale agreements with other users, including Karachi Electric, for the last 200 mmcfd of contracts.

Keeping in view all future scenarios Petroleum Division has submitted the following proposal: (i) GSA will be signed by SNGPL on an "as available basis" with Trimmu. Consequently Power Division can sign an "as available" PPA with Trimmu.

Power Division has represented that this will be acceptable to banks for financial closing based on their discussions; (ii) if Trimmu needs LNG, it shall provide a three month notice based on which the petroleum entities will procure LNG.

Once Trimmu gives a notice the quantity specified will become " take or pay" on a daily basis, and shall be subject to same practice differential obligations as 3GPPs, if not taken, Trimmu project will need to incorporate this provision in its PPA;(iii) there will be no limitations on the Petroleum Division in mitigating its risk profile of "take or pay" supplies and it may sign up firm contract with any other users to tie up this additional 200 mmcfd of firm capacity it had been holding for Trimmu, since Trimmu is not prepared to accept" firm" supplies through take or pay".

There will also be no double counting by Power Division of mitigation measures taken by Petroleum Division, i.e. Petroleum Division will first reduce its exposure on the released 200 mmcfd and only then mitigation measures after, that shall result in reduction of the price diversion differential responsibility to the three GPPs.

Special Assistant on Petroleum Division has advised the Power Division that if it does not intend to pick up the "take or pay", it should provide a notice of at least 60 days to the Petroleum Division, in writing, and through counterparty ( i.e. the 3GGPs or Trimmu) for it to initiate mitigation measures. Any shorter notice may not give sufficient time for any mitigation and will result in full cost differential being charged.

Power Division however proposed that if Trimmu needs LNG, it will have to provide a three months notice based on which the petroleum entities will procure LNG. Once Trimmu gives a notice the quantity specified will become "take or pay" on a daily basis and shall be subject to the same price differential obligation as the 3 GPPs.