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ECC okays payment for RLNG-based power projects

ECC okays payment for  RLNG-based power projects

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Tuesday approved an unprecedented payment and fuel supply mechanism for Regasified Liquefied Natural Gas (RLNG)-based public sector power projects.

The decision was aimed at facilitating setting up of 3,600MW plants in the public sector and switching about 900MW of private power projects to RLNG from domestic natural gas. These signature projects of the PML-N government are yet to achieve financial close. The objections of the National Electric Power Regulatory Authority (Nepra) were not taken up by the ECC.

The ECC meeting presided over by Finance Minister Ishaq Dr also approved payment of two-month (February-March 2016) salary to the employees of Pakistan Steel Mills ie Rs435 million for February and Rs380m for March. The ECC also allowed sale of Rs5 billion worth of mills’ inventory to meet day-to-day expenses.

Three RLNG-based projects — one sponsored by the government of Punjab and two by the federal government in Punjab of cumulative capacity of 3,600MW — would be set up in the public sector and then privatised. The projects having 30-year contractual life would be provided RLNG for 15 years through imports from Qatar but then there is no fuel supply arrangement for the remaining period.

“Due to unique nature of the projects being in the public sector and also peculiar supply chain risks associated with import and delivery of RLNG at project sites, and the terms of gas supply agreement being 15 years with no alternative fuel arrangement in sight for remaining term of the power purchase agreement (30yrs), new security package documents were required to be developed,” said the ministry of water and power.

Therefore, a new power purchase agreement (PPA) was developed in a major departure from all the past PPAs with the condition that in the event of non-supply of RLNG at the complex, the power producers shall make the complex available for power dispatches on the most expensive fuel i.e. high speed diesel.

After the exhaustion of the requested fuel stock of seven days at full load, the power producers will be entitled to declare Pakistan Political Force Majeure Event, but with the condition to place firm orders for replenishment of the daily consumption of HSD in minimum possible time. As such, “risks associated with the supply of RLNG at the complex would be initially parked with the government-owned CPPA-G (Central Power Purchasing Agency-guarantee) to be subsequently reimbursed by the defaulting party/agency to the CPPA.

Interestingly, to convert this arrangement into reality the CPPA and Sui Northern Gas Pipelines Limited and its suppliers have not been signed yet owing to a host of differences of opinion.

Making arrangements

The new PPA also entails a condition of 15 years back-to-back arrangement of fuel by SNGPL with Qatar Gas which will require CPPA or NTDC to categorise these plants as “must run” owing to the peculiarity of the mechanism of importing of RLNG.

The ECC had previously approved to cover net proceed differential which was to be paid out of the government subsidy or direct revenues. The new PPA entailed a new implementation agreement (IA) as well with additional changes required under the power policy and for the purpose of consistency mirror clauses.

“As the aforesaid risk allocation under the PPA to be reflected and backstopped under the IA adds significantly additional financial obligations under the government guaranteed compared to past standard guarantee being issued to private power projects, new changes have been approved for RLNG based projects.

The ECC also decided that net proceeds differential accruing on account of fuel supply risk to the power complex being the differential between the notified price of RLNG at the complex and notified price for utilisation, as a mean of mitigation, be provided as standard term for the public sector in the PPA.

The board of directors of the Private Power and Infrastructure Board (PPIB) was also authorised to make and approve any project specific amendments in the draft IA required during negotiations for financial closing requirements of Haveli Bahadur Shah and Balloki power projects without increasing GOP obligations.

The PPIB board was directed to ensure that amendments to agreements comply with Nepra’s tariff determination. It was also decided that the Privatisation Commission before discharging the responsibility under the law shall review and adjust the risk allocation exclusively meant for public sector projects at the time of privatisation in the light of the then prevailing power policy.

The ECC also approved amendments in agreement between CPPA and M/S Rousch, Fauji Kabirwala Power Company Limited (FKPCL) and Davis Energen pertaining to revised payment mechanism to facilitate payments of imported RLNG by IPPs to gas suppliers.

The ECC also granted under duress the tax exemption on scanning equipment donated by the government of Saudi Arabia to Anti-Narcotics Force (ANF) to enhance its capabilities in eradicating narcotics/drugs. It directed that in all such cases in future, advance approval for exemptions may be sought by the ministries/divisions concerned. The Economic Affairs Division was also directed to issue a circular to all the ministries/divisions in this regard.

Published in Dawn, June 29th, 2016

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