Engro Powergen plant: PD and CPPA-G at odds over gas pricing mechanism

ISLAMABAD: The Petroleum Division and the Central Power Purchasing Agency-Guaranteed (CPPA-G), an organisation of the Power Division, are reportedly at odds over the gas pricing mechanism for Engro Powergen’s 216 MW power plant, sources familiar with the matter told Business Recorder.

The sources revealed that Engro Powergen Qadirpur Limited (EPQL), a 216 MW gas-based power project, was established under the 2002 Power Policy and is located in Ghotki, Sindh.

The plant operates as a dual-fuel facility, using Permeate Gas (PG) from the Qadirpur gas field as its primary fuel and High-Speed Diesel (HSD) as a secondary fuel.

EPQL seeks to buy low BTU gas from PPL’s Kandhkot field

Due to the depletion of the Qadirpur gas field, EPQL has been exploring alternative indigenous gas sources to sustain its power generation. In this regard, EPQL entered into a Gas Sale and Purchase Agreement (GSPA) with Pakistan Exploration Limited (PEL) to procure gas from the Badar-1 field. This arrangement was made in accordance with an ECC decision communicated via DG Gas on October 1, 2021.

As part of this process, EPQL filed a petition with National Electric Power Regulatory Authority (Nepra), requesting the determination of the Fuel Cost Component (FCC) based on a gas price equivalent to 70% of the RLNG rate.

However, Nepra’s decision, issued on February 20, 2024, set the FCC at Rs. 13.3626/kWh, with the gas price pegged at $5.6127/MMBTU, referencing the Badar-II field as a benchmark. Notably, one member of the Nepra dissented from this decision.

During discussions at the CPPA-G Procurement Committee, which included participation from the DG Gas and DG PC (Petroleum Division), conflicting views emerged concerning the appropriate gas pricing mechanism.

CPPA-G argues that as the Petroleum Division is the relevant authority for gas concession matters, CPPA-G has sought Secretary Power Division’s guidance on the following matters.

1. applicability of the 2012 Gas Price Policy: (i) does the minimum price set under the 2012 policy apply to the agreement between PEL and EPQL; (ii) if not, what is the appropriate mechanism for determining the price for third-party gas sales?

2. Appropriateness of Nepra’s Gas Price Determination: (i) in Secretary’s view is the Nepra-approved gas price of $ 5.6127/MMBTU is appropriate, considering industry benchmarks and relevant policies?

3. Regulatory Framework for Third-Party Sales: (i) what is the available regulatory framework governing mutual negotiations and price determination for third-party gas sales, particularly for Badar-1 gas field.

4. Has PEL obtained an extension of the lease from DG PC (Petroleum Division) before proceeding with third-party sales, as required under the pact; and what is the dispute between OGDCL and PEL in respect of the lease of Badar-1 gas field and whether any adverse decision in the matter may have negative impact on the procurement of power from EPQL.

According to the CPPA-G, given the criticality of this matter to Pakistan’s energy security and cost-effective power generation, it needs clarifications and guidance from the Petroleum Division for ensuring regulatory compliance and informed decision-making process.

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