ISLAMABAD: A second generation of circular debt in the gas sector has come into being as three key Punjab-based power projects of about 3,600 megawatts on imported Liquefied Natural Gas (LNG) are now reaching the belated commercial operation dates (CODs).

Informed sources told Dawn the delayed commissioning of these plants had not only compromised full utilisation of LNG terminals but also caused demurrage charges to LNG importers, losses to the gas utilities and payment problems to the entire supply chain. A public sector bank is also reportedly facing challenges because of cash flow problems in the supply chain.

On top, the consumers were the key sufferers in view of increased cost of gas as LNG processing charges of the terminal nearly tripled from committed 41 cents per million British thermal unit (mmBtu) to $1.21 and beyond and compelled the gas regulator to increase the cost of regasified-LNG (RLNG) for consumers.

Receivables of SNGPL swell to Rs30bn as RLNG generation begins; lower than planned demand for LNG causing price to surge due to terminal charges

The Oil and Gas Regulatory Authority (Ogra) finally protested in writing over the situation as LNG shipments continued to be curtailed from planning six ships per month to just two. In an order issued last week, the regulator said the terminal charges of Pakistan LNG Ltd (PLL) were approved at 41.77 cents per unit under directives of the ECC based on 600mmcfd LNG through six consignments but the PLL was importing only two ships per month.

“Resultantly, the terminal charges, due to underutilised capacity, have increased to $1.167 per mmBtu (almost three times higher)”, wrote Ogra, adding that it “observed with concern that inefficient management of LNG supply chain is unnecessarily increasing the terminal charges directly impacting RLNG price, which is against the ECC decision and public interest”.

It said Ogra had previously allowed higher terminal charges provisionally with the hope that PLL would recoup the deficiency in the coming months, but that hope was dashed. Therefore, the regulator allowed only 42 cents per unit terminal charges which means the differential would be borne by some public sector gas company or PLL which is the importer. It also advised the PLL that it should improve efficient terminal capacity utilisation and also explore multiple avenues for marketing and sale of RLNG instead of just existing bulk consumers for which it had RLNG sales licence.

The sources said the receivables of the Sui Northern Gas Pipelines Ltd (SNGPL) were over Rs30 billion of which about Rs26bn were payable to Pakistan State Oil.

These receivables stem from inability of the SNGPL to bill full cost of RLNG which it was compelled to divert to small consumers in the absence of power plants.

About Rs4bn could not be recovered from Pak-Arab Fertilisers on account of price differential between imported RLNG and domestic gas, sending the matter into litigation.

An official said a substantial part of the emerging circular debt would have to be written off in the absence of regulatory approvals. He said an amount of about Rs17bn had been claimed against Chinese contractors of three government owned LNG power plants (GPPs) — two owned by the centre and another by Punjab – for delayed commissioning.

On the other hand, these LNG plants had “take or pay” clauses in their agreements with gas companies, particularly SNGPL but the federal government had verbally warned gas companies from billing committed gas quantities to LNG plants because that would cause a surge in their electricity tariff far beyond rates approved by the power regulator, possibly rekindling memories of Nandipur power project.

Already, a Rs10bn guarantee of Pakistan Power Parks Ltd that owns two federal LNG projects has expired and was encashable by SNGPL under the contract.

If that was not enough, the government had allowed setting up of another LNG based project of 1,200MW at Trimmu in Punjab despite strong opposition from the then secretary power and managing director of National Transmission and Dispatch Company, both of whom were removed from their position. A contract for construction of the plant has been ordered and its machinery expected to arrive shortly without first signing a gas sales agreement.

That would mean about 80pc of total thermal power capacity will remain unutilised for six-month low demand period, despite capacity payment charges for the full year.

Rashid Mahmood Langrial, who heads Haveli and Balloki plants, was happy to have delivered the first LNG power plant despite the four month delay.

He hoped the two LNG plants to serve the nation in Ramazan while the entire 3,600MW of three plants would meet peak summer demand.

He, however, disagreed that gas sector was suffering because of the delay saying they have been diverting LNG to domestic consumers that could be swapped with domestic gas at the time of low demand to bulk consumers.

He agreed that this domestic and imported gas swap was difficult but not impossible. He also agreed that lower than committed LNG supplies were adding to the terminal charges but then the total demand of the three power plants was 525mmcfd while the gas sector had planned 1200mmcfd imports and low consumption of remaining 775mmcfd could be a challenge for them.

LAHORE: The 1,230-megawatt gas-fired power station at Haveli Bahdur Shah became fully functional on Wednesday after missing its original commercial operations date (COD) by around four months because of a variety of factors.

“We have declared COD of HBS plant that is producing 1,215MW instead of the contracted 1,207MW, thus having achieved a fuel efficiency of 62.5pc against the contracted 62.4pc,” National Power Plants Management Company CEO Rashid Langrial told Dawn.

“We have completed the combined cycle operations (CCO) configuration in 31 months against the global industry average of 36-40 months for this size of project. Even before the completion of CCO, the plant has provided 1.7bn units of electricity worth Rs16bn to the national grid,” he said, brushing aside criticism that the plant was late by four months.

Four months past deadline, Haveli Bahadur Shah plant achieves COD. Two more set to start by June; 3,600MW to be added to national grid

The HBS power plant is one of the three recently built gas-fired plants in Punjab — one being financed by Punjab and two by the federal government.

All the three plants run on General Electric’s flagship gas turbines, recognised as the world’s most efficient gas turbines, and are being constructed by two Chinese companies.

Each of them has missed the original COD because of EPC (engineering, procurement and construction) related issues, unavailability of imported gas during winter, gas turbine delivery delays last year, burning of transformer and certain other technical problems.

Together, the three plants will contribute 3,600MW to the system once operational.

The Bhikki powerhouse being constructed with the provincial money is expected to finally become fully operational later this month. It was originally projected to achieve its COD at the end of December 2017.

Officials told Dawn that the delay in the Bhikki plant combined-cycle commercial operation is caused by a combustion seal leak in one of the gas turbines and vibrations and calibration issues in the plant’s foundations.

“First, a combustion seal leak meant that the turbine had to be lifted to France for repair. Then the plant foundation issues during the test runs pushed the COD at Bhikki for over four-and-a-half months as the EPC contractor, Harbin, took its time to fix the problem,” a Punjab government official associated with the Bhikki project told Dawn.

The second plant being built with federal funds at Balloki is also unlikely to come online before early June. “The burning of two transformers supplied by Siemens is solely responsible for the inordinate delay in the commercial operations of the Balloki plant. We expect it to finally start CCO by early next month,” said a NPPMC official who asked not to be identified because he is not authorized to issue public statements.

All efforts to reach the top officials of Chinese EPC contractors – Harbin for Balloki and Bhikki and Sepcol-II for Haveli Bahdur Shah – for their comments on the delays failed as they were travelling to China.

When contacted a GE spokesperson said the three projects had missed their original deadlines for their combined cycle configuration because of a variety of factors including vibration and calibration issues, damage caused to a turbine during power outage at HBS, unavailability of imported gas, burnt transformers, etc. Nevertheless, the supplier of gas turbines admitted that the delays in delivery of the turbines by up to three months did delay the simple cycle operations of the plants.

PENALTIES: NPPMC CEO Rashid Langrial confirmed that the EPC contractors will be penalised for the delay in the commissioning of the power plants. Under the agreement, he responded to a question, the EPC contractors are bound to pay $6m per day (with a ceiling of 10pc of the total EPC cost) after they miss the deadline agreed in the contracts.

That means the EPC contractor for Haveli Bahdur Shah is liable to cough up nearly $60m in fines to its employer. The total amount of fines to be slapped on the EPC contractors of the two other plants is also in the range of $55-66m. However, an official in Ministry of Water and Power said it would be difficult for the federal and Punjab governments to recover fines from the Chinese EPC contractors.

Published in Dawn, May 10th, 2018