ISLAMABAD: Raising red flags about anticipated power outages in coming summer, the K-Electric has asked the Sui Southern Gas Company Ltd (SSGCL) to conclude the signing of Gas Supply Agreement (GSA) and augment its gas pipeline network at the earliest to avoid sufferings of people of Karachi.

In a letter sent to the SSGCL on Friday, copies of which have also been sent to federal ministers for planning and energy, special assistants to prime minister (SAPM) on petroleum and power, governor and chief minister Sindh besides chairman and members of the National Electric Power Regulatory Authority, KE CEO Moonis Alvi has also offered to finance the augmentation of gas network required to meet gas pressure for KE power plants

The letter warns that “any reduction in pressure in the summer of 2021 would extend the load shed beyond acceptable level and citizens of Karachi will suffer” if the GSA and pipeline network augmentation are not concluded.

Moonis Alvi has also put on record that Minister of Energy Omar Ayub and SAPM Petroleum Nadeem Babar had decided in a meeting on Oct 8 this year that the old issues pertaining to receivables and payables between KE and SSGCL shall be “mechanised at the (federal) cabinet level” and had directed the two companies “to sign the GSA by Oct 16 by ring-fencing the old issues between them for resolution at government’s level.”

Asks for gas supply agreement and network augmentation plans to conclude

The two sides reportedly held negotiations but could not reach any conclusion. Alvi argued that as the discussion on settlement was happening at a higher level and may take a few months for an amicable resolution, both SSGCL and KE conclude the GSA so that required augmentation or rehabilitation of pipeline can be completed before the summer of 2021.

However, the SSGCL has to protect its legal and financial rights as it was a corporate entity governed by its own board of directors who could not be expected to sign a future transaction pending huge outstanding amounts unless the federal government takes responsibility in a legal manner, an official source said.

He explained that the new SSGCL managing director has been appointed only last week and would obviously like to make up his own mind on a future course of action. An acting managing director could not be expected to take a huge financial responsibility, the sources said.

In his letter, Alvi complained that several attempts to negotiate the GSA with SSGCL had remained inconclusive due to non-commitment of the utility company on gas quantity and pressure. He said that due to reduced gas quota and power demand during winter, generation was manageable for the KE but summer demand will make it necessary to operate all plants at full capacity. However, due to low gas pressure the KE faces a loss of 150MW to 250MW.

The KE chief further said the power company was ready to finance the augmentation and rehabilitation of gas network required to pre-empt increase in demand during the coming summer as soon as possible before the start of the summer of 2021. “Any reduction in pressure in the summer of 2021 would extend the load shed beyond acceptable level and citizens of Karachi will suffer”, the KE warned.

On the other hand, the government sources said the both SSGCL and the National Transmission and Despatch Company (NTDC) had linked the signing of the GSA and Power Purchase Agreement (PPA) with the KE to the clearance of their outstanding dues of Rs253 billion. The talks on the issues have been stalled for a couple of months.

Under a decision of the Cabinet Committee on Energy (CCoE) of June this year, the power supply from national grid has to be increased to 1400MW and additional gas supply of about 150mmcfd to KE. The KE and SSGCL have no GSA in place for existing gas supplies of about 200mmcfd.

SSGCL management and board of directors want to have some kind of guarantee from the federal government or payment plan from the KE for Rs103bn before entering into the GSA. Meanwhile, KE is contesting the amount and claims a principal payable of about Rs13bn to the SSGCL. Also, NTDC management also wants clearance of its Rs150bn before signing the PPA for additional power supply.

KE management had been engaged with various legal and political authorities over the past few months to resolve issues through an arbitrator or judicial directives. Planning Minister Asad Umar, who also heads the CCoE, had recently said that the resolution of KE issues had become inevitable; otherwise its receivables and payables would add Rs421bn to circular debt.

SAPM on Power Tabish Gohar had recently proposed settlement of these dues through some sort of arbitration or a court judgment for an equitable solution.

In October, the Pakistan LNG Ltd and KE had signed heads of agreement for the supply of 150mmcfd Regasified Liquefied Natural Gas (RLNG) to 900MW Bin Qasim Power Station. This was to be followed by a GSA in December or January. The PLL has to use the SSGCL network for the supply of gas to KE.

Under the understanding reached between the KE and government, the Central Power Purchasing Agency/NTDC will enhance supply to the KE from national grid by 1400MW on an urgent basis from upcoming nuclear power projects in the city and coal projects at Port Qasim.

Of this, about 500MW has to flow from K-2 plant expected to start production by April 2021. For this, the KE has to develop transmission line and related infrastructure to its Bin Qasim RLNG plants while the government has to ensure diversion of 150mmcfd of RLNG at Ogra-notified rates.

Published in Dawn, December 26th, 2020