RLNG, gas supply to Punjab plants: NPPMCL, SNGPL yet to implement ECC decisions

ISLAMABAD: National Power Parks Management (Private) Limited (NPPMCL) and Sui Northern Gas Pipelines Limited (SNGPL) are yet to implement the decisions of the Economic Coordination Committee (ECC) of 2021 related to RLNG/gas supply commitments to power plants established in Punjab, well-informed sources told Business Recorder.

The successive governments have made efforts to privatise these plants and offered them to Saudi Arabia, Qatar, and United Arab Emirates (UAE). However, those efforts have not been successful. Recently, Special Investment Facilitation Council (SIFC) asked the Ministry of Privatisation to sell these plants either through open bidding or through G2G arrangement.

Chief Executive Officer (CEO), NPPMCL, Akram Kamal, in a letter has shared the background of issues between two public sector companies, ie, NPPMCL and SNGPL.

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He said, on April 14, 2021, the ECC of the Cabinet approved to diminish the minimum 66% Take-or-Pay commitments in the Power Purchase Agreements (PPAs), and Gas Supply Agreements (GSAs) based on the following: (i) Monthly Production Plan (MPP) in the PPAs (binding on the Power Purchaser); (ii) Monthly Delivery Plan (MDP) in the GSAs (based on and paired with MPP); and (iii) making the APP and ADP indicative and non-binding. This decision was communicated by the Power Division on May 20, 2021 for implementation.

Subsequently, ECC of the Cabinet, in its decision of January 11, 2023 took the following decisions: (i) instead of completely diminishing the 66% Minimum Take-or-Pay Commitment in PPAs and GSAs, it should be fixed at 33% to safeguard the interest of both buyer and supplier; and (ii) the existing Gas Supply Deposit (GSD) under the GSA be fixed at Rs. 15 billion per power project instead of existing GSD which is equivalent to one-fourth (1/4) of maximum gas allocation valued at current applicable gas price inclusive of taxes. This decision was communicated by the Power Division on February 8, 2023 for implementation.

The NPPMCL is of the view that pursuant to decisions of ECC several meetings were held with SNGPL to arrive at a mutually agreeable draft of amended GSA in line with the said decision.

Accordingly, draft modifications were also exchanged, and discussions were held between the Parties, but SNGPL has been insisting to include following additional amendments which are not part of both the ECC decisions: (i) (a) amendment in Clause 3.6 (b), dealing with diversion of gas, to mitigate SNGPL risk which SNGPL believes it has been exposed to after losing the arbitration cases before London Court International Arbitration (LCIA) and High Court of England; (ii) change of upper limit of GCV range from 1000 BTU/SCF to 1150 BTU/SCF and; (iii) of Saturday in the definition of “Business Day” and (iv) change of arbitration clause to incorporate local arbitration under LCIA rules.

NPPMCL further stated that it is significant that amendment of clause 3.6(b) of the GSAs, dealing with diversion of gas, is under discussion between the Parties and it is likely that the same will be agreed. Moreover, SNGPL proposal for One-Time Agreement for local arbitration under the Arbitration Act, 1940 has also been agreed between the Parties for which a mutually acceptable draft agreement has been sent to the Law Division, Ministry of Law and Justice for vetting.

As to the change of upper limit of GCV range from 1000 BTU/SCF to 1150 BTU/SCF is concerned, it is not acceptable to NPPMCL for the following reasons; (i) Gas Turbines (GTS) of NPPMCL’s plants were designed based on specification of RLNG/gas with the range of 950-1000 BTU/SCF as confirmed by SNGPL January 5, 2016. These specifications were shared with EPC Contractor/OEM of GTs which were designed and commissioned based on the said GCV range; (ii) GSAs were signed with SNGPL on October 29, 2016 for a period of 15 years where SNGPL agreed to provide gas in the range of 950 to 1000 BTU/SCF; (iii) Long Term Service Contract (LTSA), signed with General Electric for maintenance of GTs is also based on the GCV range of 950-1000 BTU/SCF; (iv) the net output (capacity) and heat rate (efficiency) of the power plants achieved at the Commercial Operation Date (COD), stands locked for the plant life of 30 years and the tariff determined by NEPRA is based on said capacity and efficiency numbers; (v) NPPMCL approached GE (OEM of GTs) to obtain its expert view regarding performance impact if GTs are operated on SGNPL proposed GCV range.

As per GE Engineering team, operating the GTs on RLNG of higher GCV range as proposed by SNGPL will have following impacts: (i) Combined Cycle (CC) output with one GT will decrease by 0.6% at reference site conditions; (ii) Combined Cycle heat rate with one GT will increase by 0.1% at reference site conditions; (iii) to mitigate the performance impact (on capacity and efficiency) resulting from operation of GTs on higher BTU Gas, GE recommended the use of the FL-18 Hardware (Improved Stage 1 Nozzle, Stage 4 Bucket, Stage 4 Shroud) and Advance TP Side Seals for which the cost informed by GE in May 2022 was $ 25 million per GT approximately; (iii) there will be an increase in repair and maintenance costs after implementation of above upgrades and the amount of costs can only be quantified after passing of certain time of implementation and ;(iv) further, the LTSA will also be required to be amended to reflect these changes in the Agreement, including assumptions exhibit, performance guarantees exhibit, and other affected provisions/exhibits of the Agreement as necessary.

The NPPMCL has maintained that the proposal of SNGPL to include Saturday as a Business Day is also not acceptable to NPPMCL because it has obtained working capital facility of Rs. 42.79 billion from consortium of banks led by UBL through their Corporate branches Lahore which remain closed on Saturdays and NPPMCL is not in a position to re- arrange existing working capital facility with a similar amount from any other consortium of banks which remain open on Saturdays.

“Since the Minimum Take-or-Pay commitment in the GSAs is back-to-back aligned with equivalent despatch commitment in the PPAs, therefore, the PPAs will be amended accordingly after amendment of GSAs to comply with the subject decisions of ECC,” said CEO NPPMCL.

The NPPMCL has also claimed that it has already obtained approval from its BoD in March 2023 for amendment in the GSAs to comply with the subject decisions of ECC of the Cabinet.

“We understand that CPPA-G/Power Purchaser has also obtained such approval from its BoD while SNGPL has not yet informed whether it has obtained approval from its BoD to comply with the decisions of ECC despite various requests of NPPMCL,” he continued.

CEO NPPMCL stated that as much time has elapsed since the decisions of ECC of the Cabinet which remain unimplemented, the concerned Authorities Ben requested to advise SNGPL to comply with the decisions of ECC of the Cabinet without any further delay.

Copyright Business Recorder, 2023