Signing of gas sales agreement

ISLAMABAD: After the removal of Arif Hameed as managing director of Sui Northern, the new management of the gas utility has also locked horns with the federal government by flatly refusing to sign the gas sales agreement (GSA) for the 3600 MW power plants based on RLNG (re-gasified liquefied natural gas), which are to be set up and made operational by end-2017.
The government is eager to get these plants installed to overcome the severe power crisis. Under the programme two combined-cycle power plants based on RLNG are to be set up at Balloki (Kasur district) and Haveli Bahadur Shah (Jhang district) while the third one will be installed at Bhikki.
The federal public sector development programme 2015-16 has allocated Rs22.5bn each for the two plants (Balloki and Haveli Bahadur Shah).
The new management of Sui Northern held two-day extensive dialogue in Islamabad with top mandarins of the ministry of petroleum and natural resources and Pakistan State Oil over the issue, but declined to sign the GSA unless two other agreements (tripartite agreement involving PSO, Sui Southern and Sui Northern and reimbursement agreement with central power purchase agency) are also signed, a senior official at ministry of petroleum and natural resources told The News.
The refusal by the new management headed by acting managing director Uzma Adil Khan has really upset the government which had to postpone the EPC award ceremony for the project to be installed at Bhikki till next Monday, though it was scheduled for Saturday (today). Had the GSA been signed, the government would have handed over 10 percent advance money to the company that will start constructing the plant at Bhikki.
Federal minister Shahid Khan Abbasi has confirmed the development but claimed the issue would be resolved soon.
Acting managing director of Sui Northern Uzma Adil Khan is reaching Islamabad today (Saturday) from Lahore for further talks on the issue. Secretary, ministry of petroleum and natural resources has convened a meeting of board of directors today (Saturday) to immediately resolve the issue, the official privy to the development told The News.
He pointed out that the Sui Northern has been reiterating its stance at all levels that supply of LNG, it re-gasification and sale of RLNG is one integrated transaction and all the agreements, including the revised tripartite agreement, GSA and the reimbursement agreement with CPPA need to be finalized and signed simultaneously, but instead only SNGPL is being asked to sign the gas sales agreement.
The official argued that the reimbursement agreement with CPPA is crucial to the whole structure of transaction, as it will ensure that the risk of default in supplying gas is passed on to the entity committing the default. In the absence of such agreement, the risk continues to be parked with SNGPL even for defaults committed by other players in the supply chain.
The Sui Northern also raised another point: “The Sui Southern has backed out from its commitment on Friday evening saying that it will only provide 400 mmcfd from the ELENGY terminal while the additional capacity has to come from second future terminal. Similarly PSO had also agreed in the said two-day meetings to procure additional volumes of RLNG beyond 3 million tons per annum to cater for the IPPs requirements as well as the spot cargoes. Now PSO wants to procure the additional gas with the condition that the same will be carried out after getting required approvals from the government authorities, so at the moment it is not willing to commit to additional volume of gas under the Tripartite agreement.”
Keeping in view the fluctuating positions and unwillingness of Sui Southern and PSO for ensuring the additional LNG supplies, the Sui Northern decided not to sign the GSA with 3600 MW RLNG-based power plants.