$30m penalty

Furnace oil, coal based power generation minimised

By Khalid Mustafa

ISLAMABAD: To avoid $30 million penalty under Take or Pay mechanism and reduce the volume of demurrages, the government has minimised the furnace oil and coal based power generation to ensure maximum intake of RLNG for the purpose.

The LNG terminal-1 was earlier running 540 mmcf because of slow re-gasification rate as the Power Division was not utilising the RLNG against its committed usage of 850 mmcfd from two RLNG terminals. Pakistan State Oil (PSO) had highlighted the bitter fact in its correspondence to Petroleum Division on August 2 that it is going to face the demurrages amounting $150,000 in August on account of slow unloading of vessels carrying LNG.

The PSO also flagged the issue if the slow re-gasification continued, an LNG vessel coming on August 15-16 might attract Take or Pay charges meaning by that the whole cargo’s value of around $30 million will be to the buyer’s account without even receiving the LNG.

“Keeping in view the intensity of the issue, we have asked Power Division to minimise the electricity generation based on furnace oil and coal to increase the intake of RLNG in power sector and run the RLNG based power plants at the optimum level to avoid the demurrages and expected $30 million fine under Take or Pay mechanism,” Additional Secretary and Spokesman for Petroleum Division Sher Afgan told The News.

Right now both the terminals are running at their maximum capacity and re-gasifying the LNG of 1.15 billion cubic feet per day (BCFD).

It is pertinent to mention that the state owned oil marketing company in its letter to Petroleum Division written on August 2, 2019 had warned the government of the massive slowdown in re-gasification of LNG may cause to attract penalty of $30 million also saying that in case the corrective measures are not taken on time, the demurrages would escalate resulting in the cost of LNG in the country as the demurrages cost becomes part of the cost of delivered RLNG.

The PSO letter written by Kashif Siddiqui, General Manager Commercial Fuels to Additional Secretary of Petroleum Division had also explained saying the cargo arriving on August 15-16 might attract Take or Pay charges as well which means the whole cargo’s value of around $30 million will be to the buyer’s account without even receiving the LNG.