The Private Power & Infrastructure Board (PPIB) has sought a detailed analysis regarding minimum possible price of Pakistan Exploration Limited (PEL) gas for power generation by Engro Power Gen Qadirpur Ltd (EPQL) as its tariff will not be economical at 70 per cent RLNG, sources close to Managing Director PPIB told Business Recorder.
The decision was taken by the PPIB Board in its 137th meeting presided over by Secretary Power Division, Rashid Mahmood Langrial.
MD PPIB apprised that EPQL was commissioned in March 2010 to produce electricity using low BTU Permeate Gas (PG) from Qadirpur Gas-field. Initially, it was conceived that the PG would start declining from 2015 and reach minimum level by 2017; however, actual production was higher than projected. At present, EPQL plant is being operated in mixed-mode using HSD to the extent of shortfall in PG.
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As per gas profile shared by SNGPL, a comingling fuel would have been required by the end of 2022; however, latest estimates depict that project can continue operation for another year at a minimum technical load factor of 90 MW. To enable EPQL to proceed further, a Gas Depletion Mitigation Plan (GDMP)/ Option GDMP/GDMO has to be mutually agreed or Project can be terminated after paying the compensation amounts.
PPIB Board in its 134th meeting approved the GDMP/GDMO, with R-LNG as comingling fuel subject to certain conditions and directed NTDC and CPPAG to provide despatch modelling and sensitivity analysis on comingled R-LNG with available PG.
Representative of Planning Division explained that CPPA-G and NTDC’s analysis pronounced that project could be operated for 3 years considering available PG and IGCEP projections. Also, if this project is discontinued then flare gas of approximately Rs 18 billion will be lost. Since despatch would be on merit, the project could only be run on available PG if it is higher on merit order on comingling fuel.
The project was; therefore, recommended to be granted 3 years’ extension on RLNG as comingling fuel. Moreover, weighted average tariff will be lower with R-LNG as comingling proportion would be much lesser to operate plant at minimum 90 MW. On a query of the Secretary Power, representative of NTDC explained that there is no dependency of NTDC system on this plant.
MD PPIB explained that after approval of EPQL’s BOD, the GDMP/GDMO was again submitted to PPIB Board in 1325th meeting wherein it constituted a Committee, comprising Representative MoF as Chairman, with representative of Planning Division and MD PPIB, as Members, to further evaluate the EPQL GDMP/GDMO.
Representative MoF explained that, due to complex and unique nature of the issue no clear-cut recommendation could be framed for submission to the Board. However, since the project is utilizing local gas that otherwise is to be flared, maximum benefit could be attained by utilizing this gas to maximum and passing on benefit to the end consumer.
Secretary Power/ Chairman PPIB Board, was of the opinion that, for evaluation purposes, this is not a simple case of extension, instead it is like setting up a new project for 3 years on imported fuel and GoP cannot allow another project on imported fuel, especially when plant on lower tariff are available like that on Thar Coal and Solar. He expressed apprehension that by granting 3 years’ extension, GoP’s right of termination will be suspended for three years.
If EQPL agrees to continue in a situation wherein GoP neither forgoes its termination right nor any imported fuel is comingled, then extension of 3 years can be considered. MD PPIB explained that extension would be granted subject to the condition that GOP shall have unfettered right to terminate the IA after 3 years as if no GDMP/GDMO had taken place.
MD PPIB explained that if we do nothing about GDMP/GDMO, then this plant will either remain idle after gas depletion and will receive capacity payments till 2035, or the government can terminate the project and pay agreed compensation. Else, the government can move for GDMP/GDMO, which is a very suitable choice because it’s tariff is as low as Rs 7.23 per unit and it is at 8th number on merit with no minimum despatch commitment. The cost of LNG setup is $ 6 million which is not “pass on” and EPQL has also explored an option of local low BTU gas from PEL, for comingling, which is available at 70% of LNG price.
Besides, EPQL is also interested in utilizing Kandhkot gas on as-and-when-available basis. It was discussed that tariff would not be economical with 70% of R-LNG price and plant efficiency of 45.5%; thus, there is a need to discuss and reduce the PEL gas price. The Board desired that EPQL be engaged on reduction in PEL gas pricing. Moreover, Petroleum Division should make an analysis with OGRA regarding minimum expected price of PEL gas.
MD PPIB also highlighted that in all the options, the implementation costs and CAPEX are to be borne by the company with no liabilities on GoP and there will be no requirement of minimum off-take, adding that since the project will be dispatched on merit order, it will only produce electricity on any fuel if it is feasible, i.e., lower in tariff. However, capacity payments are to be made if project continues operation which will be around Rs. 1.34/kWhr as major portion, i.e., debt has already been retired.
Alternatively, in case of project termination, compensation amounts are to be paid on which there may be some difference in calculations between PPIB and EPQL. It was decided that a duly signed-off table be finalized with EPQL on year-wise termination compensation amounts for rest of the life of the project.
The Chairman enquired about the base price assumption for LNG in CPPA-Gs sensitivity analysis. CPPA-G revealed that it was assumed at $20. Representative of Petroleum Division stated that R-LNG spot price is $35. The Chairman opined that it is going to be an expensive fuel in foreseeable future and a decision on basis of available sensitivity analysis should not be made.
Representative of MoF reiterated that absolute clarity on assumptions, in case of non-availability of PG, does not exist, as available data does not throw enough numbers; therefore, the Board should not take any decision unless analysis is further refined. The Board then considered hiring of an independent expert for the purpose of analysing viability of proposed GDMP/GDMO, in case internal analysis does not suffice. The Board also desired that Petroleum should make an analysis with OGRA regarding minimum price expectation of PEL gas field.
After detailed discussion, the Board took the following decisions: (i) since sufficient clarity on financial results of GDMP/GDMO, did not exist, the Board directed that further analysis is to be done on the possible options of gas depletion mitigation; (ii) EPQL is to be engaged for reduction in PEL gas pricing. Moreover, Petroleum Division shall make an analysis with OGRA regarding minimum expected price of PEL gas; and (iii) a duly signed-off table be finalized with EPQL on year- wise termination compensation amounts for rest of the life of the project.
