Lahore - Electricity produced from LNG would add to problems of the power sector, as cost of such electricity would be higher than that from furnace oil. This was stated in a Fact Sheet issued on Monday by the Institute for Policy Reforms.
IPR has advised the government to learn lessons from past mistakes. So far, little is known about the import price of LNG. However, based on the estimated price paid for recent import of 147,000 cubic feet, cost of power from LNG would be higher than that produced from furnace oil. Nepra recently determined upfront tariff based on imported LNG. Nepra’s assumed cost of $12 per mmbtu for imported LNG is higher than the present cost of power from furnace oil. IPR also questions the need for government to seek upfront tariff from Nepra. Upfront tariff guarantees return to investor, but do not require them to meet any efficiency or productivity criteria. The parameters for the power plant remain open. “All costs are passed through to the consumers while the power producer receives an assured return,” says the Fact Sheet. Upfront tariff also does not require the investor to come through a competitive process.
Relying on imported LNG is no different from what took place under the 1994 power policy. That policy brought about change in fuel mix from hydropower to thermal power and gave extensive comfort to the investor. Upfront tariff was part of the 1994 policy.
The core problem with the present power sector is its high cost of production because of high reliance on furnace oil. To overcome this, government must seek lower cost solution not one that increases the cost. Imported LNG, whose input cost is higher than furnace oil, cannot help the power sector, the IPR report said.
Government must also set right the many governance issues that hobble power supply. IPR estimates that about 30pc of the sector’s revenue is lost at the distribution stage. There are inefficiencies also with transmission and distribution of power. Tariff policy is skewed and circular debt uncontrollable. Almost every unit of power generated carries a subsidy. New generation also would face all of these issues and the sector would resultantly continue to under-perform.
The Fact Sheet opines that reducing the suffering of the people and stimulating economy must be at the heart of any new initiative by the government. It counsels government to set the power sector house in order. For immediate relief to the people, it must increase allocation of domestic gas for power production. This will reduce cost and increase generation by bringing in capacity that cannot operate presently for want of gas. Government must take administrative measures to reduce Disco losses. At the same time, it is necessary to look holistically at the power sector and reform the flawed policy, the crumbling structure, and broken governance. Increased power at high cost from imported LNG should not be its priority, the IPR report concluded.
PEW points towards inconsistency in LNG deal
INP from Islamabad: The Pakistan Economy Watch (PEW) on Monday said kickbacks to the tune of billions have been feared in the LNG import deal which can jeopardise the energy future of the country. Authorities have been violating the LNG Policy in a bid to benefit a mafia comprising a banker, a stockbroker and others, it said.
Pakistan is paying almost two dollars extra to buy one mmbtu of LNG hiking cost of first shipment of LNG comprising 140,000 tonnes or 72, 80,000 mmbtu by almost Rs. 1.5 billion, said Dr. Murtaza Mughal, President PEW.
He said that if three million tonnes of LNG was imported annually as per the plan it will translate into losses of almost Rs 31 billion which will damage economy but benefit the influential individuals. Mughal said that international suppliers are delivering LNG at the port of buyer country at the cost of $7 per mmbtu while Pakistan is buying the commodity at Qatar at the rate of $8 which costs it $9 at Karachi port. He said according to experts adding the charges of terminal, regasification, transportation, losses and theft will jack up the price of LNG to $12 per mmbtu.
Majority of Pakistan population depends on agriculture but the fertilizer sector has been forced to buy LNG from PSO at exorbitant cost which is exploitation of masses, he noted. Some of the insiders are of the opinion that Indian companies were aware of the cost of LNG for Pakistan therefore they offer cheaper rates despite the fact that distance of Karachi port from Qatar is 933 nautical miles while its distance with Indian post of Gujrat is 1484 nautical miles.