Merit order calculation: OGDCL concerned over Nepra’s fixed-cost move
ISLAMABAD: The Oil and Gas Development Company Limited (OGDCL) has raised concerns with the National Electric Power Regulatory Authority (Nepra) over the inclusion of fixed costs in the merit order calculation, stating that the practice hinders optimal utilization of the country’s indigenous gas resources, well-informed sources told Business Recorder.
The concern was conveyed by General Manager (Commercial) OGDCL, Habibullah Chohan, while commenting on the merit order ranking of Uch-II Power (Private) Limited, which has been placed at 15th position.
Uch-II operates on indigenous low-BTU gas supplied by the state-owned OGDCL from the Uch Gas Field (UGF) located in District Dera Bugti, Balochistan. The UGF gas has a low calorific value and contains high concentrations of acid gases, including CO2, NO, and H2S, making it suitable exclusively for power generation through customized power plants.
Accordingly, this gas was specifically allocated to Uch-I and Uch-II power plants to support the country’s electricity requirements. Any irregular or constrained gas flow from the UGF can adversely affect reservoir behavior, potentially causing substantial damage and severe loss to this critical national resource.
Sources explained that the power sector merit order is generally determined on the basis of variable cost per kWh of operational power plants. However, in the case of Uch-II, 50 percent of the fixed take-or-pay component stipulated under the Uch-II Power Purchase Agreement (PPA) and Gas Supply Agreement (GSA) is also being included in the merit order calculation.
The inclusion of this fixed component has created an anomaly that inflates Uch-II’s generation cost, pushing the plant down the merit order and consequently reducing its dispatch. This reduction in offtake has already affected the integrity of indigenous gas wells supplying Uch-II, and several OGDCL wells have been shut in due to non-dispatch since November 10, 2025.
“We appreciate Nepra’s consideration and response to our concern regarding the exclusion of fixed costs from the merit order calculation, which will enable optimal utilization of the country’s indigenous gas resources,” Chohan added.
Copyright Business Recorder, 2026
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