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Friday July 19, 2024

RLNG producing costlier power than furnace oil

ISLAMABAD: Power plants running on RLNG (re-gasified liquid natural gas) at the cost of $12.80 per MMBTU are more costly if compared to the plants running on furnace oil as fuel, this was disclosed in the official correspondence copy of which is available with The News. The documents about LNG

By Khalid Mustafa
September 11, 2015
ISLAMABAD: Power plants running on RLNG (re-gasified liquid natural gas) at the cost of $12.80 per MMBTU are more costly if compared to the plants running on furnace oil as fuel, this was disclosed in the official correspondence copy of which is available with The News.
The documents about LNG price also available with The News divulge that margins of PSO, gas utilities and terminal charges and general sales tax have increased the price of RLNG for power by $3.83 per MMBTU up to $12.80 if the cost and freight price of LNG stands at $7.97 per MMBTU.
The bringing down cost of doing business and making the electricity availability affordable is still a distant dream and the basic spirit expressed by the government behind import of LNG to scale down the power tariff and provide a major solace to the consumers seems to have vanished.
According to the official letter of General Manager (system Operations) in both the state owed companies that include National Power Control Centre (NPCC) and National Transmission and Dispatch Company (NTDC) written to Mr Shaheryar Qazi General Manager of Sui Northern Gas Pipeline Centre on July 29, 2015 with the subject ‘Low Consumption of RLNG Swap Gas by Power Plants’, it has been clearly mentioned that the electricity being generated on furnace oil is more cheaper than the electricity being produced by power plants running on RLNG swap gas.
The letter exactly mentions: “Since RLNG swap gas is being allocated to KAPCO (Kot Addu Power Company), FKPCL (Fauji Kabirwala Power Company Limited), Orient, Saif and Saphire power plants. NPCC has the prime responsibility to run all the power plants as per merit order prepared by the Authority.” The letter further says: “As per merit order plants running on RLNG swap gas are more costly as compared to plant running on furnace oil.”
Secretary of Ministry of Water and Power Younas Dagha when contacted said: “I have not seen this correspondence.” However, he also disclosed that RLNG will replace diesel only, not furnace oil as fuel.
Independent experts say that it is really shocking news that RLNG will replace the diesel in power plants not the furnace oil. “This means that electricity generation by RLNG is more costly than the electricity of furnace oil based plants.”
The substantial increased margins of gas companies such as importing agency - PSO on re-gasified LNG (RLNG) have further burdened the consumers.
The exchange of RLNG with local gas will ensure more local gas supply to end users, but that additional gas will be included in the Unaccounted For Gas (UFG). ‘Pay and take penalty’ clause means that if the government fails to utilize the imported gas, or in case the LNG vessel is not used for country consumption, the loss to the LNG carrier will be borne by the masses and revenue loss means if the private companies or power sector fails to consume the RLNG or in case some of RLNG is, somehow, used by any consumer due to any fault, the loss will be recovered from the end users – the consumers, of course, through tariff.
According to the official documents about another LNG transaction available with The News, the DG Gas on a letter written on April 21 to Ogra disclosed that the imported cost of LNG stands at $8.52 per MMBTU on which LNG terminal services charges stands at $1.46 per MMBTU. The $8.52 landed price of LNG per MMBTU is too much as on April 15, it was available in open market at $6.9 per MMBTU.
The Port Qasim charges stand at $1 million per cargo (48 cents per MMBT). Pakistan State Oil which is at loss on account of circular debt has increased its margin to 4 per cent (34 cents per MMBTU) from 3 percent. Now in the revised draft of tripartite agreement with Sui Northern and Sui Southern, the state owned Pakistan State Oil has further increased its margins from 4 percent to 5 percent. Likewise, FED, Sindh Tax and withholding tax have been levied by 1-1.5 percent. On top of that SSGC and SNGPL will equally but separately take the administrative charges of 5 percent per dollar (34 cents per dollar). In addition, SSGC will take transmission charges of 28 cents per MMBTU and SNGPL 52 cents per MMBTU.
The Oil and Gas Regulatory Authority (OGRA) has raised objections over four percent margin for Pakistan State Oil (PSO) on import of LNG, saying that consumers should not be unnecessarily burdened.
According to well-placed sources, Ministry of Petroleum and Natural Resources, in its draft summary of April 2, 2015 provided that it intends RLNG pricing in line with pricing of other petroleum products on monthly basis and accordingly relevant schedule of Petroleum Products (Petroleum Levy) Ordinance 1961 are being amended to declare RLNG as a petroleum product.
Accordingly, RLNG price shall be notified on monthly basis, as decided by the Federal Government. The OGRA maintained that eventually entire RLNG supply chain is required to be governed by a proper regulatory framework under OGRA Ordinance. Therefore amendment to OGRA Ordinance will be appropriate to regulate this activity.
OGRA commented on “LNG Price” saying that “take or pay volumes, losses on account of net sale proceeds” were not included under this head earlier approved by the ECC. The same have now been added without mentioning its basis. Therefore, MP&NR is required to elaborate the nature of such expenses along with rationale and this cost should not be recovered from the end consumer.”
The regulator which remains dysfunctional argued that import of LNG is being handled by the federal government. Accordingly, LNG price including take or pay volumes, losses on account of net sale proceeds and relevant adjustments due to exchange rate forming the LNG price may be provided by the federal government for inclusion in monthly price computation.
This will require specific pricing methodology and comprehensive mechanism to ensure transparency in the entire LNG procurement process.
In this case, Take or Pay component is the responsibility of the defaulter which should be accounted for separately and may not be treated as part of LNG price.