Ministerial group cites challenges, risks in circular debt-plagued power sect
ISLAMABAD: The Ministerial Group has cautioned against the privatisation of two LNG power plants, citing concerns about the current investment climate. The government’s intention to privatise these plants, established during the Pakistan Muslim League-Nawaz’s tenure with an LNG contract signed with the government of Qatar, is under scrutiny.
Sources reveal that the apex committee of the Special Investment Facilitation Council (SIFC) directed the consideration of privatising two RLNG (Re-Gasified Liquefied Natural Gas) Power Plants. The committee constituted a Ministerial Group following the apex committee’s directions to evaluate the possibility of privatising Haveli Bahadur Shah and Balloki RLNG Power Plants.
After thorough deliberation, the Ministerial Group asserted that the privatisation of these two LNG power plants is not advisable at the present time, considering the overall investment climate. The group highlighted potential gains from future tariffs, estimated at Rs130.8 billion, and pointed out a payout to clean books amounting to Rs264 billion. It also noted that RLNG power plants had already generated a profit of Rs153 billion.
Qatar has expressed interest in acquiring these LNG-based power plants. In 2021, the cabinet committee on energy exempted LNG-based power plants from a 66% guaranteed off-take of LNG, despite the potential financial strain on gas utility Sui Northern Gas Pipelines Limited (SNGPL) and the power plants. The Pakistan Tehreek-e-Insaaf government also contemplated exempting the LNG power plants from the merit order.
Impact on the Power Sector and RLNG Supply Chain
The power sector plays a pivotal role in the re-gasified LNG supply chain, and any disruptions in RLNG supply/demand impact the economic dispatch of power, leading to high line pack issues in the gas transmission system.
When RLNG supply falls below the firm order, the basket price of electricity rises compared to situations when supply follows demand. Lower RLNG supply causes operational constraints and system stability issues for the system operator. Conversely, the basket price is affected when the plants are compelled to accommodate RLNG oversupply by gas companies. The take-or-pay contractual arrangements for the three RLNG-based power plants specify a minimum fuel offtake requirement of 66% annually, as established under the Annual Production Plan. The decision to exempt RLNG power plants from guaranteed offtake was made by the Cabinet Committee on Energy following the demand of the then privatisation minister during the PTI government.
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Private parties advocating for the exemption, particularly those interested in acquiring these LNG power plants, pressed for the move. Sources reported that Qatar’s interest in acquiring these LNG power plants prompted the exemption of guaranteed offtake to enable control of LNG supply.
Currently, Pakistan State Oil (PSO) supplies LNG to SNGPL, which distributes it to the LNG power plants. Guaranteed offtake also involves damages if LNG power plants do not take at least 66% of supplies. Thus, the decision to exempt these power plants from 66% guaranteed offtake aimed to safeguard private investors from potential damages.
Challenges and Recommendations
Experts caution that the privatisation of these LNG power plants is not a straightforward process, as the power sector is grappling with circular debt that continues to rise. Payment issues for electricity supplies remain a major concern, with circular debt in the LNG sector emerging as a key factor in the overall circular debt in the power sector.
Several challenges lie ahead, even if the government decides to proceed with the privatisation plan. Experts further recommend that the government address the issues of power distribution companies (Discos), which are significant contributors to the circular debt.
