Mismatch of fuel price mechanism: PPIB locked horns with Pepco

The Private Power Infrastructure Board (PPIB) has locked horns with Pakistan Electric Power Company (Pepco) over ''mismatch of fuel price mechanism in agreements with 235 mw Tenaga Nasional Berhand (TNB) Liberty Power Limited, sources told Business Recorder.
TNB is the largest public sector electricity utility company of Malaysia, which also operates a 235 mw gas-based independent power plant (IPP) at Daharki (Sindh). The TNB Liberty Power Project was developed pursuant to Power Policy 1994 and operates on OGDC''s Qadirpur gas field supplied by SNGPL through a Gas Supply Agreement (GSA) of September 1, 2000, and sells power to Wapda/ NTDC (power purchaser) pursuant to Power Purchase Agreement (PPA) of November 26, 1995.
The company has been facing various issues. However, the major issue, which has disturbed the economics of the company, is ''mismatch of fuel price mechanism in PPA and GSA''. Sources said that there is a discrepancy between the pricing formulas being applied for the determination of energy payment by the power purchaser and the pricing of natural gas for payments to gas supplier (SNGPL) ie payment under the Power Purchase Agreement (PPA) is determined on the basis of 67.5 percent of the weighted average of a basket of crude oils imported into Pakistan during the 6 months period while the company is paying price of gas to gas supplier determined on the basis of 100percent HSFO parity.
As per the prevailing mechanisms, sources said, the company has to pay higher gas price to SNGPL (as compared with other power plants) under the GSA and recover low gas price from Wapda under the PPA through tariff, resultantly incurring significant losses.
Moreover, another discrepancy which further compounded the situation of company''s losses is application of conversion formulae from dollar to rupees which are applied on different basis under the PPA and GSA for determining the energy payments and gas price respectively. According to the information provided by TNB Liberty Power Ltd, owing to the anomaly ie mismatch of fuel price mechanism in PPA and GSA, the company has suffered the loss of Rs 3.9 billion till FY June 2010.
The PPIB took up the issue with the Ministry of Petroleum and Natural Resources (MoPNR) to get the GSA harmonised with the PPA as no positive development could be brokered, a summary for ECC consideration to make PPA harmonised with GSA was moved to Ministry of Water and Power by PPIB. In reply, Pepco/Wapda suggested some amendment in the draft of ECC summary and is of the view that in order to remove the anomaly, GSA should be amended, instead of PPA. However, the PPIB has not agreed with Wapda. Sources said that a summary is being submitted to the ECC for seeking permission to amend the agreement with the power company.