New IPPs not to get fuel supply guarantee: Privatisation of PSO, OGDC
By Khaleeq Kiani
ISLAMABAD, Dec 3: The government has decided not to provide sovereign guarantees for fuel supplies to the new independent power producers (IPPs) owing to the proposed privatisation of the Pakistan State Oil and the Oil and Gas Development Corporation, a source told Dawn on Sunday.
The source said the ministry of petroleum and natural resources had informed the Private Power and Infrastructure Board (PPIB) – a one-window facilitator – that the government would not provide guarantees on behalf of fuel suppliers because they would switch over to the private sector soon.
The government had provided sovereign guarantees on behalf of PSO, OGDC and several other fuel suppliers to all the existing IPPs as part of their 25-30 year agreements to ensure an uninterrupted fuel supply. Since these fuel suppliers were in the government sector, the government was liable to heavy damages in case of failure by any supplier to ensure an adequate fuel supply. Although none of the suppliers ever defaulted, the guarantee was seen as a liability. The government would, however, continue to fulfil its obligations vis-à-vis the existing IPPs for the remaining period of the agreements.
Sources said the petroleum ministry felt the new IPPs should enter into fuel supply contracts on their own. “How can the government provide guarantee for uninterrupted fuel supplies on behalf of the private sector,” a source quoted a senior petroleum ministry official as saying. Currently, the government guarantees also cover any fuel supply disruptions even if these are in the shape of gas disconnections as a result of terrorist attacks on pipelines.
The government has already decided to allow setting up of IPPs based on gas, oil and dual fuel and has announced an upfront tariff for all categories because of the looming power shortage. The government expects to face an electricity shortfall of 5,500mw by 2011 and is now even considering allowing refurbished and second-hand power plants to meet the shortages. In fact, a few influential groups have already started negotiations with the government for second-hand plants.
A few months ago, Islamabad had allowed Wapda to import, on a rental basis, a couple of old plants for three years to overcome shortages in the immediate future.
A source said the government had barred the Private Power Infrastructure Board from allowing oil- and gas-based projects without prior approval of the cabinet in order to check the proliferation of projects based on imported fuel.
The projects will also be awarded on the basis of international competitive bidding wherever natural gas is made available by the producers to the government and the government allocates it for the power sector. International competitive bidding basis will also apply to oil or dual fuel projects. All projects for which a feasibility report has been prepared, will be offered to the private sector on the same basis.
Sources, however, explained that the government would continue providing sovereign guarantees on behalf of the purchasers, although most of the power companies are also on the privatisation list. The difference here will be that the National Transmission and Dispatch Company (NTDC) and the Central Power Purchasing Authority (CPPA) will continue to be in the public sector.
This means that government guarantees would be available to all power projects regardless of capacity, provided the power purchaser is a federal entity and its tariff is approved by the National Electric Power Regulatory Authority.
