Governments bet on RLNG

So far, things have rolled smoothly on RLNG-based power projects, for the Federal and Punjab governments. After the government decided that it is not feasible for private sector to come up with mega projects on LNG, given the short time line; it formed two companies under the umbrella of the federal and provincial governments, to quickly install and operate power plants.
After wasting two years in search of an array of coal power plants at Gaddani and upcountry, the authorities decided to diversify the energy mix. A couple of coal-based projects are already in the works in Punjab (Sahiwal) and Sindh (Port Qasim), by Chinese and local groups. But the gestation period is long enough to make it possible for any of these projects to be completed before the end of the current governments tenure.
However, in case of LNG, the government still has time; and is moving on the right track. The Qauid-e-Azam Thermal Power Company, under the ownership of Punjab Government, negotiated well on awarding an EPC contract.
Consequently, a well reputed Chinese contractor, Harbin Electric International won the EPC contract in a joint venture with sub-contractor Habib Rafiq at $480-490 per KWH; at an unprecedented efficiency of 61 percent.
The contract is for engineering, procurement and construction of 1100-1200MW RLNG-based combined cycle power plant at Bhikki, Punjab. To get an idea of its excellent pricing; compare it with Guddu gas-based power plant of 750MW executed a couple of years back; at a cost of $900-1000 per KWH. Not only is the contract cost half the Guddu project; it is also a green field project, unlike that gas-based plant.
There is a slump in the market. Industry giants such as GE and Siemens are finding it hard to find buyers for turbines. This is why contractors were able to bid cheap; equipment is available at much lower prices.
The other commendable factor is higher efficiency. Existing plants in the country work at as low as 25 percent efficiency while the relatively better plants operate below 50 percent efficiency. With 61 percent efficiency, the new plants will be twice as efficient. They will not only lower the import burden, but also help to reduce circular debt. The levelized tariff is about 7-8 cents per unit.
The only catch in the deal is that contractors are using GEs latest gas turbine technology which has not been tested in real life scenarios. This is the key risk that this project carries. It may encounter teething problems which could mean delays. Still, GE is among the worlds leading engineering companies. So it is well poised to address any emergent challenges.
The timeline of the project cannot be ascertained without financial close. Once this is done, the project will be online in 18-20 months. Punjab Government has commitments of financing from a consortium of HBL and NBP, for the project. However, financial close is contingent on gas supply arrangements and there are bureaucratic hurdles there; which may cause unnecessary delays.
Initially, there were dredging issues to preclude smooth timely supply of LNG. That is done and now around 200 mmcd of LNG arrives in the country, on a daily basis which is being supplied to fertilizer companies and CNG suppliers. But for consumption of power producers; the pricing ought to be declared.
Ogra is taking its sweet time to finalize gas prices. Without it, NEPRA cannot determine tariffs for IPP contracts. Without NEPRAs tariff, the IPPs cannot open LCs with PSO. In turn, PSO is unable to set up contracts with relevant authorities in Qatar.
Once these administrative matters are resolved, the financial close will be the next hurdle to overcome. The 18-20 months needed to get the plant set up will only commence after that challenge is overcome.
In the meanwhile, existing combined cycle power plants can use LNG, as a fuel. Currently, around 200 mmcfd of imported gas is coming into the system and it can be doubled, given the existing capacity.
Apart from the intended plant at Bhikki; the Federal Government has awarded an EPC to Power China with similar specs and rates for another LNG plant. However, its financing plan has not been finalized; either the government will finance this project through its development budget or it will get Chinese financing for it.
Considering the governments self-imposed deadline of December 2017 for these LNG projects to come online; it has 8-10 months to achieve financial close. However, it would not be wise to let the bureaucratic hurdles linger much longer. Rather they should try to complete the projects on a priority basis to cover the risk of delays that may be caused by testing of the new technology.
Simultaneously, there is a need to expedite the process of building north-south gas pipelines to ensure smooth supply of imported gas to plant sites in Punjab. Concurrently, they should keep up with the speed of improving transmission and distribution systems to ensure that the national gird can handle the additional power, coming into the system. The bottom line is that if the governments don make any blunder, cheaper electricity may well be in the system, before the next elections.