Non-maintaining of mandatory fuel stock: PSO accuses AES Pakgen power plant of violating FSA

Pakistan State Oil (PSO) has accused AES Pakgen power plant of violating Fuel Supply Agreement (FSA) by failing to maintain mandatory fuel stock levels despite post-flood advice and PakGen Power Plant and Lalpir Power Ltd for not making timely payments in compliance with section 8.1 of the FSA.
In response to a letter sent by Secretary Ministry of Water, PSO clarified that PakGen Plant resumed its operations after floods with very low stocks against PSO advice to improve its stocks and bring it to the mandatory level.
"In view of the forgoing situation, we would appreciate your kind intervention for arranging funds from PEPCO, HUBCO and KAPCO to liquidate PSO receivables of over Rs 133.5 billion from the energy sector, which will enable us to pay the dues of refineries," PSO Managing Director Irfan Qureshi stated in his letter, adding that such action would "greatly facilitate in streamlining the supplies to Pakgen and Lalpir Power Ltd from PARCO".
"Due to failure of Pakgen to keep their mandatory stocks as per FSA, they were operating the plant on day to day basis, particularly during the peak winter season when the demand of electricity is significantly enhanced due to non/less availability of other sources of energy (hydal & gas)," the letter adds.
PSO authorities said that even with such low inventory, PSO managed to maintain uninterrupted supplies to PakGen to meet its demand. "As of today 7800 Metric tons usable stock is available which at present daily consumption rate of 1500 MT translates into 5.2 days cover," letter says.
PSO authorities maintain that PARCO refinery is one of the main sources of supply to PakGen and Lalpir Power Ltd. In the pervious years, PARCO refinery used to supply fuel from 50,000 to 55,000 metric tons per month through pipeline to PSO depot for onward supplies to Lalpir and PakGen Power Ltd.
"However, due to circular debt, PARCO reduced fuel oil quantities to PSO drastically thus adding further pressure on country's fragile supply-chain. Even under critical financial position, PSO is managing receipts from PARCO in intervals to ensure uninterrupted supplies to both the plants," letter adds.
The supplies are in progress to both the plants from PSO Lalpir depot by pipeline and tank lorries as follows: (i) Lalpir Depot at 3550 MT (under delivery via pipeline), Tank Lorries on standby at PSO Lalpir Depot at 7770 Mt, Tank Lorries on standby at PakGen/Lalpir plants at 1480 Mt and tank Lorries in transit (road/rail) at 10500 Mt. Around 23300 MT total stock is in transit to be available for power plants.
The letter alleges that "for the past many years, PakGen and Lalpir Power Ltd have been unable to make payment in compliance with section 8.1 of the FSAs. Therefore, Lalpir and PakGen contention of making timely payment is historically incorrect. However, the customer has now remitted payment for 30,000 MT each for both its plants to meet its fuel demand of 2nd fortnight January 2011 as per FSA".
"It must be taken into account that the rail mode of supplies has virtually come to a standstill," MD PSO says, adding that taking account of the inability of railways, the entire product movement is being made through tank lorries from Karachi. PSO authorities say that in this scenario, it has become necessary for Pakgen to decant the product through tank lorries until stocks reach a sustainable level.
PSO further alleged that "regarding the contention of customer for supplying product with 3 to 6 percent moisture content is totally misleading. During the winter season, there is comparative increase in the water content due to steaming process and the same cannot be avoided operationally. Moreover PSO except for three occasions, whereby the water content was 1.5, 0.7 and 2.2 percent and customer was duly compensated, the water content and calorific value were according to the required product quality."
PSO spokesman has denied the allegations that it was defrauding Pepco of $25million yearly. The spokesman said that the slightly higher moisture content in the fuel during winters was a standard occurrence in winters as the product is given steam at the time of decantation. This process cannot be avoided operationally.
The spokesman said that in addition the notion that PSO had not ensured uninterrupted supply of fuel and is currently supplying only 14,300 tons per day on average is misleading and based on false grounds. Given the adverse weather conditions, external factors and slow movement of railways, slight delays in transportation of furnace oil have been witnessed.
Moreover, to avoid any crisis and ensure that uninterrupted supply is maintained, PSO had strongly recommended to PEPCO and other stakeholders to build their stock levels for the winter, as transportation becomes an issue due to external factors over which PSO has no control. But PEPCO did not pay much heed to these recommendations earlier on.
It is also important to note that despite outstanding dues and mounting receivables, PSO is continuing to supply fuel to these entities to generate power. Therefore, the claim that Rs 45 billion being released to PSO as advance is incorrect and false. This payment was received in lieu of outstanding dues on part of PEPCO and was not part of any advance payments. This too was issued on special instructions of the Prime Minister and intervention of the Ministry of Petroleum and Natural Resources to save PSO from impending default due to non-payment of its receivables which currently stand at Rs 133.5 billion. In addition since PEPCO has already outstanding amounts, all payments first need to be settled against these amounts before an advance payment can actually be made.