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May 25, 2019

SNGPL faces financial risks as power sector reduces RLNG use


May 25, 2019

ISLAMABAD: The state owned Sui Northern Gas Pipeline Limited (SNGPL) has warned the government of unimaginable financial risks in the shape of demurrages and take or pay claims as Power Sector has reduced the RLNG consumption against the demand and this situation will expose the gas utility to huge financial loss, unfolds the letter of the SNGPL Managing Director of gas company addressed to secretary Petroleum Division.

“Yes, we have got the letter from the said gas company that has perturbed the officials of the ministry, but when the mercury goes down then the electricity generation gets reduced, but it hits the Sui Northern which supplies the RLNG as per demand,” a senior official at Petroleum Division told The News.

The official said that Sui Northern is already facing the loss of over Rs26 billion for the RLNG that was diverted to domestic sector during the last winter from December 2018 to February 2019 and the amount of the RLNG has not been recovered yet as Ogra has sought on the issue the policy guideline from the government.

The gas company has also faced in the past the situation of less consumption of RLNG by the power sector which is why the RLNG was diverted back to Sui Southern System where it is used by the domestic sector and so far the RLNG used by Sui Southern because of less consumption by power sector, the Sui Northern is facing Rs30 billion loss which is yet to be recovered from Sui Southern.

The official said the only way out to resolve this issue is to enter into gas purchase agreement with every power house that uses RLNG for power generation to ensure the payments under take or pay mechanism. This correspondent tried to get the response of Special Assistant to Prime Minister on Energy Nadeem Babar, but he did not respond.

However, the letter written on May 21, 2019 by Managing Director of Sui Northern Mahmood Zia Ahmad highlighted the issues of reduced RLNG consumption by power sector with adverse impact on financial health of the gas company saying that initially RLNG requirement given by Power Sector was 1.043 billion cubic feet per day and 1.170 bcfd for April and May 2019 respectively which was later revised down to 850 mmcfd on SNGPL request keeping in view re-gasification and transportation constraints. RLNG supplies have been accordingly arranged and the RLNG volume if not off taken results in operational issues and ultimately financial loss on account of demurrages or take or pay claims.

Letter further says that consumption of RLNG in the powers sector has always been lower on day to day basis as against its firm demand of 850 mmcfd for April and May, 2018. It said, “Since there is no RLNG storage in the country, therefore the daily fluctuations have to be within the reasonable band, while monthly consumption is deceptive”.

The top man of the gas company also shares the experience of very critical situations which are repeated in the recent past when consumption of RLNG significantly tumbled below 530 mmcfd leading to an emergency situation for a number of days from April 1-4 then from April 14-19 and then from April 28-30 followed by May1-3 and May 17-May 20. He mentioned arguing that the situation resultantly could only be managed through reduction in re-gas rates at LNG terminals, exposing the company to unimaginable financial risks in the shape of demurrages and take or pay claims.

SNGPL being responsible corporate entity, the letter says, has always carried out its duties diligently and in most efficient manner, SNGPL is undertaking all possible endeavour to off load maximum RLNG to sectors from where RLNG cost could be recovered so that payment can be made to RLNG suppliers.

However, it is the inaction at the end of power sector that is jeopardizing the whole RLNG supply chain. The gas company has further suggested that power sector should revise down the demand to 750 mmcfd from July 1, 2019.

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