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Gas utilities unwilling to renew gas supply agreements with IPPs

The country’s thermal energy mix is feared to deteriorate further as firm gas supply agreements of independent power producers (IPPs) are expiring and gas utilities are not willing to extend or renegotiate the same any more, said sources.

Lately, the allocation of natural gas for power sector has declined to a precarious level, which is hardly sufficient to produce electricity matching the installed generation capacity.

As many as four IPPs setup under the Power Policy 2002, including Saif Power, Sapphire Electric, Orient Power and Halmore Power, had their firm allocation of gas in November last year. Sources in the IPPs Advisory Committee said that their agreements were for 30 years and three years had passed only.

After that, until a new firm allocation is made by the Economic Coordination Committee, the supply is on at the available basis, keeping in view the government’s gas supply priority that keeps the power sector on number two, following the supply to residential and commercial customers.

Sources said that their agreements were for 30 years and remained in place. Besides, each of the four companies had opened letters of credit of approximately Rs1.0 billion as security to Sui Northern (SNGPL) and these guarantees also remained in place. However, the gas companies were unwilling to commit supply on a firm basis.

According to the power purchaser agreement with the National Transmission and Dispatch Company (NTDC)/Wapda and the government, these companies charged fuel cost to WAPDA for gas when gas was being supplied and diesel when gas was not being supplied. There was nothing to be redone in the contracts as the arrangements were already in place.

Sources said that it had been envisioned and stated in the contracts that diesel would be used for three months only in winter and the rest of the year and firm gas allocations would be renewed, which has not been done by the government since last year.

The cost of fuel consists of 85 percent of total power sale price, by an IPP to NTDC for every unit produced is about Rs5.0 when run on gas, and Rs22 on diesel.

According to IPP Advisory Committee, if one of these four IPPs are run at full capacity on diesel instead of gas, the additional cost of fuel to be paid by NTDC for one year would be Rs30 billion, approximately.

Therefore, for four plants running at full capacity for a whole year on diesel, NTDC would have to pay an extra Rs120 billion per year resulting in a multiplying effect on circular debt.

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