LAHORE: Electricity produced from LNG will add to problems of the power sector, as cost of such electricity will be higher than that produced by furnace oil, maintains a Fact Sheet issued by the Institute for Policy Reforms here on Monday.

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 has 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 the government to seek upfront tariff from Nepra.

Upfront tariff guarantees return to investor, but does not require them to meet any efficiency or productivity criteria. The parameters for the power plant remain open. “All costs are passed onto the consumer 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 a change in fuel mix from hydel 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, the government must seek low-cost solution, not one that increases the cost. The imported LNG, which costs higher than furnace oil, cannot help the power sector.

The IPR estimates that about 30 per cent 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 underperform.

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 the 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. Power generation at high cost from imported LNG should not be its priority, it said.

Published in Dawn, April 14th, 2015

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