The Economic Coordination Committee on the Cabinet (ECC) would attempt to resolve the riddle of whether natural gas should be allocated to power or the industrial sector in its meeting on June 28.
According to an official source, the Ministry of Water and Power had recommended the ECC to allocate gas, for another year, to four gas-based Independent Power Producers (IPPs), all located in Punjab. This would ensure availability of 842 MW of electricity after June 30. The Ministry of Petroleum had earlier set a date for discontinuation of gas supplies to other sectors.
The four IPPs including 229 MW Saif Power Project, 229 MW Sapphire Electric Power Project, 229 MW Orient Power Project and 225 MW Halmore Power Project had earlier served termination notices to the government, claiming all their investment cost along with the profits for five years.
Pakistan is facing a gas shortfall of 1 bcfd, against its production of 4bcfd per annum. Since power shortages were also hovering above 5,000 MW during the sultry summer months, the industrial sector had opted for gas-based captive power plants to meet their requirements. An increase in furnace oil prices has forced the IPPs to use gas for their production. This has further escalated the problem on the natural gas front, which is mainly utilised by the fertiliser and industrial sectors. For the last two years, power sector had been demanding its allocation of natural gas to meet chronic power shortages in the country.
The source said that the Ministry of Petroleum was still adamant that it was not in a position to ensure gas supplies to 4 IPPs after June 30. However he said that the ECC was likely to overrule the Petroleum Ministry and stress upon a gas allocation to these power plants on a priority basis as otherwise the power crunch in Punjab would escalate.
The ECC had allocated 38 mcfd of gas on a nine months basis for these IPP’s up to June 30, 2011. The IPPs had requested for an extension in their gas allocation for at least two years in order to continue their operations. Their argument was that the changing of fuel was not possible within the span of just a few months and the only viable option was to extend gas allocation for these projects for another 2 years.
The IPPs have argued many times that the matter needed to be looked at holistically as a decision made to cater to a short term crisis would also have both medium and long term repercussions. They demanded that the government should reprioritise gas allocation to different sectors and IPPs should be given priority.
According to the source, Sui Northern Gas Pipelines Limited (SNGPL) had already informed the government that there was a huge gap between demand and supply of natural gas.
It could supply gas to these IPPs by curtailing supplies of industrial sector but even that would be on an availability basis.
The Ministry of Petroleum was of the opinion that SNGPL could not commit gas supply to IPPs unless the gas situation improved through either resolution of 900 mcfd of gas under litigation or a major gas discovery. The other available option was supplies of Liquefied Natural Gas (LNG), which may take at least two years.
All of these IPPs located in Punjab had also approached the Ministry of Petroleum for the import of LNG. The government had allowed them to do so and use the transmission network of the public sector gas utility companies, but even that would take months to materialise.
