Power Division seeks to end guaranteed annual LNG offtake

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ISLAMABAD: The Power Division is seeking an end to the existing minimum guaranteed annual Liquefied Natural Gas (LNG) offtake to facilitate privatisation of $2 billion power plants in Punjab amid strong resistance from state-owned oil and gas companies.

A report published in Dawn claimed that three major oil and gas suppliers — Sui Northern Gas Pipelines Ltd (SNGPL), Sui Southern Gas Company Ltd (SSGC) and Pakistan State Oil (PSO) — have put on record in recent meetings that they would not remain financially viable entities as their entire LNG supply chain from Qatar to end consumers was based on guaranteed offtakes.

The second option entails two further choices in case the government is contractually bound to adhere to the PSO agreement with Qatar Gas till the year 2025. The first choice is to withdraw the existing minimum guaranteed off-take of 66pc immediately after the review period of PSO agreement with Qatar Gas in 2025.

Under the third option, the Power Division has proposed that an additional cumulative impact of about Rs471bn on the basket arising due to the guaranteed off-take of 66pc up to 2025 on account of dispatch of these power plants beyond the principle of economic merit order shall be allowed as subsidy to power sector consumers.

Sources quoted in the report claim that the Petroleum Division has directed PSO and the two gas companies to submit their written risk allocation profile within 36 hours so that their viewpoint could also be placed before the ECC.

A Petroleum Division official said that in case of 66 percent “take or pay” clause gone, the SNGPL and PSO would go bankrupt because they would not be left with any dependable consumer class to sell this imported gas that had guaranteed agreements with foreign suppliers involving heavy penalties.

He said the two gas utilities had no substitute consumers. “The only consumers that exist in the system are those who consume it for almost free like domestic consumers and those who want it subsidised like zero-rated sectors and fertiliser.”

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