Malaysian IPP: ECC changes gas pricing formula February 02, 2014 MUSHTAQ GHUMMAN 0 Comments E-mailPrintPDF Economic Co-ordination Committee (ECC) of the Cabinet has changed the gas pricing formula for a Malaysian Independent Power Producer (IPP). Official documents available with Business Recorder reveal that M/s Tenaga Nasional Berhad (TNB), a public sector utility of Malaysia, is an IPP with a 235 MW capacity, commissioned under 1994 Power Policy. The IPP is located near Dharki, Sindh, and operates on Qadirpur gas field supplied by SNGPL through a Gas Supply Agreement (GSA) dated 1st September 2000. Ministry of Water and Power maintains that gas based IPPs are efficient and produce cheaper power in comparison to oil based IPPs. However, the IPP ie M/s TNB Liberty Power Project had intimated it has an efficient plant but unlike other gas-based IPPs, it does not produce cheap electricity due to very high gas price charged by SNGPL under the GSA. Under the GSA, the gas price charged is on the basis of 100% HSFO parity instead of usual practice of 67.5% of the weighted average of a basket of crude oil import during the 6 months period. On the other hand, under the Power Purchase Agreement (PPA) signed between TNB LPL and WAPDA, gas price is determined on the basis of 67.5% of the weighted average of a basket of crude oil imported into Pakistan during the six-month period. The IPP further highlighted the serious and critical situation confronted on account of gas price notification of Rs 1633.94 per MMBTU as six monthly price from 1st July, 2012 which the IPP is unable to recover under PPA as market price determined under the PPA was fixed at Rs 1310.11/MMBTU. This has resulted in a deficit of Rs 323.83 per MMBTU on account of fuel charges. Further, the company claimed a direct loss of Rs 250 million per month. Owing to such an anomaly in the existing agreements (GSA and PPA), the IPP considered the project as commercially unviable which will ultimately force the company to stop its operations under the prudent industrial practices. Hence, it has been urging the Government of Pakistan to match gas prices in both agreements, ie, GSA and PPA. In order to rectify the anomaly in gas pricing for the project, it was proposed to amend the GSA to harmonise it with Power Purchase Agreement (PPA) with regard to gas pricing. Accordingly, a summary was circulated to the Ministries of Finance, Petroleum & Natural Resources, Law, Justice and Parliamentary Affairs, NTDCL/Wapda Private Power Organisations (WPPO), Wapda, Ogra and Nepra for their views/comments. In its response, Ministry of Petroleum and Natural Resources suggested that to give effect to the Ministry of Water & Powers proposal for amending the GSA, the earlier decision of the ECC (Case No ECC-45/05/2000 dated 08/03/2000) to determine the gas sale price may be amended. Original ECC decision is as under: The Qadirpur Gas Price for sale to Liberty Power Plant Limited has to be fixed equal to the price charged by the SNGPL from WAPDAs Power Plants (adjusted for lower heating value) or C&F price of HSFO on energy content basis, subject to a minimum of US $80 per ton price of HSFO, whichever is higher. The gas price indexed to the HSFO price shall be notified on a six-monthly basis, as per mechanism prevalent for fixation of wellhead gas prices of other fields. Therefore it may be amended as follows: The Qadirpur Gas Price for sale to Liberty Power Plant Limited has to be fixed equal to 67.50% of the weighted average of a basket of crude oil import during the six-month period which shall be notified on 6 monthly basis as per mechanism prevalent for fixation of wellhead gas price of other fields. According to the Water and Power Ministry, the essence of summary was to remove discrimination towards the TNB LPL. Therefore, the suggestion of Ministry of Petroleum & Natural Resources was endorsed to remove the disparity being faced by the IPP. Accordingly, consideration of ECC of the Cabinet was solicited to amend the ECC decision vide Case No ECC-45/05/2000 dated 08/03/2000 as proposed by Ministry of Petroleum and Natural Resources. The revised formula would be applicable from the date of approval of the ECC of the Cabinet without any retroactive adjustments. The GSA and PPA will both be revised in strict harmony to avoid undue benefit to any single party. Ministry of Petroleum and Natural Resources, in its comments, has clarified that estimated reduction in Gas Development Surcharge(GDS) on SNGPL system would be in the range of Rs 2.5 billion per annum depending upon the difference of 100 per cent parity with HSFO price and 67.5 per cent parity with crude oil. Insiders claim initially the IPP earned reasonable money because of lower price of HSFO as compared to gas. However, when their earnings declined the IPP raised a hue and cry. The price of fuel is a pass-through item which perhaps implies the IPP was not suffering a loss.
Posted on: Sun, 02 Feb 2014 02:31:13 +0000
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