Govt to ban new oil-based power units

ISLAMABAD: With electricity tariffs going beyond absorptive capacity of the economy, the government has decided in principle to ban setting up of oil-based new power projects forthwith to contain surging oil imports that eat up a major chunk of foreign exchange every year and destroy road network.

A senior government official told Dawn that the ministries of finance, planning, petroleum and water and power were currently finalising the procedures for introducing Liquefied Natural Gas (LNG) as replacement fuel – instead of fuel oil – on short-term basis to seek its formal approval from the federal cabinet.

A guiding principle for banning oil-based power projects may be announced as part of the federal budget, he said.

A break to oil-based power generation becomes all the more important given the fact that the furnace oil based electricity average cost hovers around Rs14.5 per unit compared with 30 paisa per unit hydel and Rs3.4 per unit cost of gas-based power generation.

At present, almost one third of the country’s total imports are made up of oil. Of the total oil consumption of over 20 million tons, furnace oil consumption stands at about 10 million tons.

Of the existing 20,000MW of power generation capacity, less than 7,000MW comes from hydropower, natural gas and nuclear energy.

Another 5,000MW of oil-based power projects are currently in the pipeline, which coupled with existing oil- based projects of more than 13,000MW are estimated to put an unviable burden on national economy.

The industrial sector is already reeling under unusually higher input costs.

The existing installed fuel oil based plants require 36,000 tons per day despite the fact that total port capacity to handle oil import is less than 25,000 tons, although even this much of oil could not be imported because of circular debt issues, resulting in higher electricity shortfalls.

Another 3-4000 tons per day of fuel oil is produced locally.

Officials said the government intended to replace fuel oil with short-term imports of LNG, which needed immediate resolution of infrastructural, transportation and pricing issues.

Given the proximity of Port Qasim with the pipeline grid, the federal government would soon issue directives to the PQA to allow private investors to conduct a study for deepening the navigation channel whose cost would be offset against future royalty payments to the port.

This will immediately be followed by dredging at the proposed channel and the PQA will be required to purchase at least three new tug boats for manoeuvring vessels in the Channel.

The planning commission is already working to laying down a gas transportation capacity allocation and third party access rules to ensure that capacity was made available to the company that brings LNG to the first point of delivery.

As a security, the government would ensure that regasified LNG (RLNG) not consumed by an independent power producer (IPP) for any reason be diverted for consumption on interruptible basis to other liquid fuel consuming power plants on the
purchase price of RLNG by an IPP.

The government will also ensure long-term purchase of LNG for 8-12 hours to secure supplies and provide long-term revolving irrevocable bank’s letter of credits (LCs). This would be a totally a new facility because confirmation of Pakistani LCs are valid for six months at present.

Moreover, as a facilitation measure, mechanical failure of any LNG vessel at a Pakistani port would be treated as force majeure event, while any failure of local pipeline transportation would also be determined as force majeure.

Also, the private buyers would also have the option to go for spot LNG purchases, which is currently prohibited under the existing rules.

The stakeholders have already discussed the mechanism to allow swapping of gas whereby imported LNG would be provided to SSGC in Karachi that would release equal number of MMBTU (million British thermal units) to SNGP in the North for supply to IPPs. When such gas remains available in the system, the two Sui companies would be allowed to sell such surplus gas to their consumers based on the cost of LNG.

In addition, the power producers would make payments to LNG sellers through an escrow account to ensure that if huge receivable from power purchaser persist, the LNG seller could encash commercial guarantees and help the business smooth.