ISLAMABAD: Sui Northern Gas Pipelines Limited (SNGPL) has encashed a Rs14 billion worth bank guarantee (standby letter of credit) to avoid a possible bank default.
Sources in the power division informed Pakistan Today that SNGPL was about to file for a bank default. To avoid the default, SNGPL encashed the Rs14 billion worth standby letter of credit of the three Re-gasified Liquefied Natural Gas (RLNG) plants commissioned under the former Pakistan Muslim League-Nawaz (PML-N) government.
They said these three RLNG-run power plants had failed to clear payments of RLNG while SNGPL has started process to get encash Rs5 billion worth bank guarantee of KEPCO and Pakistan LNG Limited has cancelled per month procurement of three cargos. SNGPL has to collect Rs29 billion from 15 power plants using RLNG, sources added.
Quoting the provisions of agreements of the RLNG run power plants with SNGPL, the sources said SNGPL is bound to sell 600 million cubic feet of RLNG and for this a security deposit of Rs57 billion with SNGPL is important while due to default of RLNG-run power plants only Rs27 billion out of total Rs57 billion of the security deposit is left with SNGPL.
It is relevant to mention here that masses and national exchequer have been facing Rs4 billion monthly loss owing to the successful manoeuvring of furnace oil lobby in the power division. And, it is feared that this loss might touch Rs50 billion by the end of the year.
Sources also said that RLNG-run power plants are generating electricity below to their generation capacity and these plants are demanding lesser quantity against their committed demands. They said around 900MW out of 3600MW of electricity was not being generated from Haveli Bahadur Shah, Bhikki and Baloki power plants.
They also said that SNGPL has expressed its inability and cancelled the procurement of 300 million cubic feet per day (MCFD) from PLL after finding non-payments worth billions of rupees from the RLNG-run power plants and further absence of RLNG demand from the power division. And, due to this, PLL has decreased LNG supply as the PLL has on a monthly basis cancelled import of three cargos of LNG to the country.
According to a letter of SNGPL to power division, SNGPL has apprised that PLL has floated a tender for the procurement of LNG cargoes to be delivered during September and October 2018 and requested to provide RLNG demand for aforementioned months latest by July 26, 2018.
It is pertinent to mention that the previous power division has indicated RLNG requirements which, however, have not been varying downwards constraining SNGPL to resort to curtailment of RLNG. This has been the main stumbling block in respect of forecasting RLNG supplies and has been the case until now.
“It is a matter of grave concern for SNGPL since unutilised RLNG cannot be diverted to other sectors without a financial hit of differential tariff and also results in operational difficulties apart from the inability to pay upstream supplies due to less consumption/sales. SNGPL is therefore, not in a position to confirm the RLNG requirement for the month of September and October 2018 to PLL, owing to such erratic RLNG consumption by power sector till confirmation to off-take firm volumes on a take and pay basis by power division is explicitly communicated,” read SNGPL letter.
The SNGPL in its letter also communicated that unless and until power division commits off-take of RLNG volumes on firm take or pay basis, we shall not be able to place an order for RLNG with upstream suppliers and consequently requisite RLNG volumes will not be available during the coming months. SNGPL also said less off-take of RLNG by power sector may have serious consequential effects for sustainability of LNG supply chain. As such, it is requested to confirm requirements of RLNG on firm take or pay basis during September and October 2018 and ensure its consumption per the indicated requirements along with timely payment of outstanding dues. It may kindly be noted that SNGPL shall pass on any consequential loss to power division in any eventuality arising from deviation in RLNG consumption.
It is relevant to mention that PLL has written several letters to the power division to know LNG demand but so far no reply from the division (power). While despite the cheap production of electricity by Rs3 per unit with RLNG in comparison to power generation with furnace oil, some officials of power division are allegedly involved in enhancing furnace oil consumption, said sources.
