K-Electric (KE) is reportedly reluctant to accept RLNG price being supplied to it by Pakistan LNG Limited (PLL), well informed sources told Business Recorder.
On March 9, 2022, KE wrote a letter to the Federal Government on this issue and conveyed its viewpoint on the pricing mechanism of RLNG. On the basis of KE letter Oil and Gas Regulatory Authority (OGRA) has been asked by the Government of Pakistan to determine the price of RLNG supplied by PLL to KE.
K-E has written another letter to Ministry of Energy reiterating that the sale price at which RLNG was being supplied to KE should be rationalized and comparable to the price of RLNG being supplied to the rest of the country.
“Unfortunately, due to KE’s contractual arrangement with PLL for the supply of RLNG, the recent trend of PLL buying spot cargos at extremely high price in the range of $25/MMBTU to $35/MMBTU is alarming for KE,” the power utility said, adding the determination of RLNG sale price for PLL’s supply of RLNG to KE is kept restricted to PLL cargos only as contrary to the pricing regime for other power plants in the country that are being supplied RLNG at the basket rate notified by OGRA i.e. calculated at weighted average cost of higher priced PLL cargos and a greater number of lower priced long term PSO cargos.
“In our view, the need for spot cargos arises either to bridge default of long-term cargos or due to ad-hoc decisions made by GoP from time to time to meet domestic and/or system demand of SNGPL that have no correlation with KE,” the power utility maintained.
KE reluctant to buy expensive RLNG from PLL
According to KE, to avoid financial consequences on its consumers, it has proposed the following with respect to the LNG molecules sale price for KE: (i) it should be based on the average of OGRA notified DES prices of both PSO and PLL cargos as being done for other power plants; or (ii) it is kept restricted to PLL cargos under the long-term contract only with the exclusion of spot cargos, if any purchased by PLL; or (iii) it is anticipated that some of PSO cargos may be novated to PLL to mitigate the impact of spot cargos in future.
KE’s Chief Regulatory Affairs, Imran Qureshi maintains that the fuel cost is a pass through, so any inequality in the RLNG pricing for PLL’s supply to KE as compared to the other power plants in the country should be avoided as it would lead to injustice with the large population of country’s economic hub situated in gas producing Sindh province. He has further claimed that KE was already deprived of locally produced natural gas which was in complete disregard to Article 158 of the constitution and simultaneously KE consumers would have to bear the extra cost of immensely high priced spot LNG cargos that are primarily purchased by GoP to fulfill the needs of SNGPL’s consumers.
“It is extremely crucial that the determination of RLNG sale price for PLL’s supply to KE is done in a justified manner, so that KE’s consumers in Karachi & adjoining areas are not treated differently from the rest of the country,” he added.
