Consumers to face severe gas shortage during next 3 months

ISLAMABAD: In the wake of severe gas shortages to the tune of 2,220MMCFD for upcoming three months from December to February period, the Economic Coordination Committee (ECC) of the Cabinet is all set to approve gas load management plan under which all sectors will have to face shortages for next few months.

According to the summary going to be tabled, the ECC, under the chairmanship of Minister for Finance, Asad Umar, here on Tuesday (today), the summary of Ministry of Energy and Petroleum Division, would accord approval to the gas load management plan keeping in view overall shortages to the tune of 2,220MMCFD for this ongoing winter season. In the last ECC meeting, its approval was deferred, and the minister for finance had directed to come up with sectoral distribution of gas shortages. Now the Ministry has prepared a detailed summary.

The ECC would also give approval of a summary floated by the Ministry of Finance for provision of GOP guarantee to the National Power Parks Management Company (Private) Limited (NPPMCL) to raise Rs38 billion from the Financial Institutions. The government wants to raise Rs38 billion from the financial institutions through the said proposal of the Ministry of Finance.

According to the summary, the NPPMCL, a 100% owned company of the Federal Government, is mandated to establish and operate two re-gasified liquefied natural gas (RLNG) based power generation plants at Balloki, District Kasur and Haveli Bahadur Shah, District Jhang with capacity of 1,223MW and 1,230MW respectively.

The Executive Committee of the National Economic Council (Ecnec) in February 2016 approved both the power plant projects at the total cost of Rs190,440.58 million, the Federal Government provided Rs114 billion as cash development loan (CDL) to the NPPMCL at the standard terms during the FY 2015-16 and FY 2016-17. To meet the remaining fund requirement, the NPPMCL was advised to arrange the said funds on self financing basis.

Subsequently, the Federal Cabinet in Case No160/Rule-19/17 approved the acquisition of two RLNG based power plants of the NPPMCL by Pakistan Development Fund Limited (PDFL). Accordingly, the amount of CDL (ie Rs 114 billion) disbursed to the NPPMCL was acquired as advance against equity injection by the PDFL. Further, to partially fulfill the funding requirements of the NPPMCL, PDFL has also provided short terms loan of Rs32.738 billion.

The NPPMCL has requested the Power Division and Finance Division to arrange project financing requirements amounting to Rs70 billion to payoff remaining cost of the projects and short term loan of the PDFL.

The financing requirements of the NPPMCL has been examined, and it has been decided in consultation with relevant stakeholders that the principal amount Rs32.738 billion provided by the PDFL to the NPPMCL as short term loan would be converted PDFL equity into NPPMCL. The NPPMCL shall raise Rs38 billion from the financial institutions with GOP guarantee to payoff the remaining cost of the two power plant projects.

In view of the position explained above, approval of the ECC of the Cabinet is solicited for provision of the GOP guarantee to National Power Parks Management Company (Private) Limited to raise Rs38 billion from the Financial Institutions, the Ministry of Finance added. Moreover, the Executive Committee of the National Economic Council considered the Summary dated 11th February, 2016, submitted by the Ministry of Planning, Development and Reform on “1,223MW (Gross) Combined Cycle Power Plant at Balloki, District Kasur PC-I” and approved, in principle, the modified project at rationalised total cost of Rs92,336.02 million, including the FEC of Rs59,008.06 million and constituted a committee comprising minister for Petroleum & Natural Resources (Convener), minister for Water and Power, the attorney general, provincial finance ministers and secretary, Law & Justice Division, to resolve the matter relating to interpretation of Article 154 of the Constitution, within one week.

The Executive Committee of the National Economic .Council considered the Summary dated 11th February, 2016, submitted by the Ministry of Planning, Development and Reform on “1230MW (Gross) Combined Cycle Power Plant at Haveli Bahadur Shah, District Jhang PC-I and approved, in principle, the modified project at rationalised total cost of Rs98,104.56 million, including FEC of Rs61,461.11 million and constituted a Committee comprising of minister for Petroleum & Natural Resources (Convener), Minister for Water and Power, the Attorney General, Provincial Finance Ministers and Secretary, Law & Justice Division to resolve the matter relating to interpretation of Article 154 of Constitution, within one week.

Background of the issue is that the Cabinet committee on energy in its meeting held on February 12, 2015, decided to explore the possibility of executing 3,600MW power plants to be funded out of federal PSDP. Accordingly, PCIs of subject projects were approved, in principle, by Ecnec on May 13, 2015, while the revised PCIs were approved by Ecnec on February 17, 2016. As such, the said projects were included in the medium-term I five-year plan and allocations for FY 2015-16 and FY 2016-17 were made from the PSDP in the shape of the Cash Development Loan, where-under a cumulative amount of Rs114 billion was provided.

However, on June 29, 2017, Finance Division vide letter NoF.2(13)lnv112015changed the source of funding from the PSDP to the PDFL without any such proposal by NPPMCL and/or the then line ministry ie Ministry of Water & Power and committed that such an arrangement will not adversely affect the future funding requirements of both the power projects and their capital structure for tariff purposes.

For a total requirements of RS59.456 billion during FY2017-18, only an amount of Rs27.738 billion for the first quarter was provided by the PDFL as short-term loan. Thereafter, the PDFL was again requested in November 18, 2017, for release of balance funds; however, the PDFL, while providing another RS5 billion as bridge finance advised to arrange further funding on commercial basis from financial institutions. Accordingly, the matter was taken up with the financial institutions, but banks remained reluctant in view of ceilings of their per-party limits.

Subsequently, a summary was also moved in May 2018 by the Power Division for approval of the ECC to issue sovereign guarantee to the NPPMCL so that balance funds could be arranged from financial institutions; however, it could not reach to its logical conclusion due to lack of visibility of its vigorous follow-up.

Meanwhile, owing to delay in the COD of the projects and resultant non-utilisation of gas, the gas supplier (SNGPL), under “take or pay” regime, encashed the standby letters of credit (SBLCs) provided as security which resulted into: (a) creation of forced liability by the banks against the NPPMCL; and (b) demand of the SNGPL to recoup the SBLCs. Thus, further deteriorating the financial health of the NPPMCL and adding to the reluctance of banks in providing requisite funding on commercial basis.

The matter of provision of remaining funds was again taken up with the PDFL in a meeting held on August 07, 2018, in the committee room of the Finance Division under the chairmanship of the additional secretary finance (IF/Inv), wherein, the PDFL instead of making any commitment for provision of further funds required that the NPPMCL should arrange required funds, including loans already provided by the PDFL on commercial basis at its own, issue preference shares in the name of PDFL and sign the loan agreement.

It was apprised that if the remaining project funds were available with the NPPMCL, the forced liability created due to encashment of the SBLCs could have been paid from the amount saved by setting-off the delay liquidated damages from the amounts owed to the EPC contractors.

However, non-provision of remaining project funds by end of August 2018 would result into non-clearance of forced liability hence creating an event of default against the NPPMCL. As such, syndicate banks would stop further drawdown from funded working capital facilities resulting into non-payment of weekly RLNG consumption bills to the SNGPL, eventually leading to suspension of operations of the power plants.

The above situation demands immediate intervention for arrangement of remaining funds by the financing agency (PDFL/MoF), otherwise, non-operation of these power plant of national importance would result into, inter alia, reduction of 2,400MW power in the national grid, non-utilisation of 400MMCFD of RLNG jeopardising the sustainability of the RLNG supply-chain, arising of various contractual complications having associated cost overruns and huge financial loss (Capacity loss Rs74 million per day + RLNG Net Proceed Differential Rs494 Per day) to the federal government being sponsor of the project Thus, government's endeavor to provide relief to public would remain unaccomplished for no fault of the executing agency (NPPMCL) despite successfully installing and achieving commercial operations of subject power plants with tremendous efforts.

In view of the above, it is requested that extraordinary general meeting may be held at the earliest enabling the NPPMCL to issue the preference shares to the PDFL;

The Finance Division /PDFL may be approached for providing remaining funds required to payoff the remaining cost of the projects as committed vide the Finance Division letter NoF2(13)Inv-I/2015 dated June 29, 2017, out of which an amount of Rs12.5 billion be disbursed in August 2018 to avoid the event of default under the working capital facilities agreements, and

in case the Finance Division / PDFL is unable to provide the remaining funds then the GoP guarantee be provided enabling the NPPMCL to arrange project financing amounting to Rs70 billion (Further requirement Rs37.067 Billion + short-term loan by the PDFL Rs27.738 billion + bridge finance by PDFL Rs5 billion); meanwhile, assistance be provided for extension of date settle the forced liability till arrangement of said project financing.

A meeting of the major banks, including the working capital syndicate banks of NPPMCL may be called at the Finance Division to discuss and finalise the above matters.