Sui Northern Gas Pipeline Limited (SNGPL) has sought special incentives and tax regimes to maintain Re-gasified Liquefied Natural Gas (RLNG) as economically viable for all sectors, including domestic consumers. This demand has come from the SNGPL's Board of Directors (BoD) through a letter to the Secretary Petroleum and Natural Resources.
According to the letter, SNGPL has been engaged in the business of supply of RLNG to RLNG consumers in its franchise areas since April 2015. Due to lack of a cohesive policy framework in RLNG business, it has been replete with major issues and risks since its inception. The risks and issues have taken alarming proportions since 2017-18 and now not only pose a threat to the viability of the company but also put at risk the entire RNLG supply chain and various stakeholders involved therein.
The SNGPL Board has repeatedly taken cognizance of loose ends of RLNG supply chain in its numerous meetings and has now authorized the Chairman BoD to raise the issues with the GoP at the highest level. The BoD maintains that continuity of RLNG supply is likely to collapse unless and until remedial measures are taken by the GoP.
A major risks involved in RLNG supply chain is that the major chunk of imported RLNG is allocated to power sector and any fluctuation in RLNG consumption by power sector as against the given demand adversely impacts the whole RLNG supply chain.
Owing to lesser off-take by power sector, as against the indicated requirement, SNGPL has not only been facing technical/ operational issues but has also been exposed to financial hits in the share of tariff differentials (for sale of RLNG as system gas) as well as demurrages to upstream parties. Hefty Take or Pay (ToP) penalties are also likely to be imposed by LNG suppliers. Such an eventuality will either result in heavy damages for the individual stakeholders or sharp increase in RLNG price to be billed to the RLNG consumers, depending upon OGRA decision in the matter. Delay is upstream payments is also caused due this state of affairs.
SNGPL's risk profile, however, further deteriorates since it has firm RLNG supply agreement with upstream supplier(s) on 100 per cent take or pay basis and is committed to purchasing 4.5 million tons per annum(approximately 600 MMCFD). On the other hand, SNGPL has firm supply agreements with only four Government Power Plants (GPPs) whereby these plants are obligated to take or pay for only 60 per cent (minimum gas order) of the maximum gas allocation.
According to the letter, signing of back to back take or pay agreement with the Power Division/IPPs is essential. This is the only solution to mitigate sharp variations between power sector demand viz actual consumption, wherein the defaulting party will be obligated to pick up consequential damages.
It has also been proposed that dispatch order for RLNG-based power plants ought to be prioritized with immediate effect so as to ensure that RLNG off-take remains as per the demand and no under-utilization occurs in any case. GoP must make necessary changes in the legal framework either through policy guidelines or through a legislation to enable the company to bill the domestic sector at RGLN price as and when this gas is consumed.
RLNG and system gas mix formula, as is applicable in case of industrial consumers, shall be allowed by the GoP in case of domestic consumers as an immediate remedial measure, till such time as the government makes necessary legislation or other legal framework, the Board Chairman argued.
He further states that it has been difficult to sell RLNG to industrial sectors due to relatively high price as against indigenous supplies and competitive worldwide export tariff. RLNG is primarily absorbed in power sector due to lower price as against alternative fuels and being a passed-through item. However, there is a risk of RLNG's underutilization as more and more power plants are now being commissioned on coal and hydel. Pakistan's energy mix is quickly changing which may lead to non or underutilization of RLNG based plants particularly in off peak periods. Also RLNG-based power generation may tend to become uncompetitive viz-a-viz other fuels as the oil prices may increase beyond a certain range.
SNGPL proposes government intervention (with special incentives and tax regimes to maintain RLNG as economically viable) is required on an urgent basis. Environmental levies need to be introduced for high carbon emission fuels like coal and furnace oil based generation line with the rest of the world.
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