ISLAMABAD: The government may be heading towards a series of liquidity damages and swelling capacity payments as it works towards ending power cuts by the end of the year.

Official documents seen by Dawn suggest that even though the government has lined up imported Liquefied Natural Gas through independent bidding, it is having difficulties in the off-take of these quantities due to infrastructure bottlenecks.

On the other hand, the country’s power generation capacity is expected to outperform demand by the end of October for the first time in over a decade.

Surplus power generation would continue during the winter months (between October 2017 and March 2018) and would even out in April, May and June 2018, when demand and supply would reach an equilibrium around the 25,000 megawatt-mark.

Next year’s winter will begin with a greater availability of power generation than actual demand or consumption, a situation that would snowball over the next two to three years. For example, if the demand in March 2018 is anticipated at 19,300MW, available capacity at the time will be higher than 21,300MW.

Peak demand for June 2018 is estimated to reach 26,500MW, when the available generation capacity would be around 27,500mw.

This would leave reasonable spinning reserves — extra capacity that can be made available by increasing the power output of generators already connected to the system — but that would attract capacity payment claims from power producers, without actually generating any electricity.

This gap, which will increase to 3,000MW over the next two years, was recently referred to as a “capacity trap” in recent government meetings.

But before that stage, the immediate challenge is how to avoid liquidity damages arising out of bottlenecks in the present supply chain network — both on the generation side and the LNG supply infrastructure — due to which the system is unable to utilise committed gas supplies.

In attempt to minimise damages, the government is apparently ready to look the other way in places where it can justifiably charge liquidity damages to private parties for not delivering on their commitments.

At a recent meeting, it was noted that the RLNG-II Pipeline from Port Qasim to Sawan had not been commissioned due to the non-completion of a 400-metre section in Jamshoro, which passes through the property of Mr Kashif Shoro, who was not allowing Sui Southern Gas Company Limited (SSGCL) to complete the work.

The matter was also discussed in a meeting of the Cabinet Committee on Energy (CCOE), but it is still unresolved and the transportation of 1.2 billion cubic feet per day of RLNG to the Sui Northern Gas Pipeline Limited (SNGPL) system would not be possible until the section is commissioned.

It was noted that at present, 650 million cubic feet per day (mmcfd) of RLNG was being transported through the existing system under a swap arrangement. Due to system constraints, additional gas volumes cannot be transported through a swap. Efforts are being made, however, to resolve the issue and complete the pipeline by August 1, 2017.

On top of that, three 1,200MW RLNG power plants, namely Bhikki, Haveli Bahadur Shah and Balloki, have not been able to off-take gas volumes as per their planned schedule, according to the Ministry of Petroleum and Natural Resources.

The Bhikki power plant came online after a four-month delay, while the Haveli Bahadur Shah power plant has started off-take of 43.5mmcfd for its GTI on May 2017 and the off-take is expected in June 2017.

The Balloki power plant is currently slated to become operational in Aug-Sept 2017, the petroleum ministry wrote, adding: “Full off-take of 600mmcfd RLNG for the three power plants is not expected until September 2017”.

At present, SNGPL is selling over 200mmcfd of indigenous gas as RLNG to cater to the winter requirements when the same amount of RLNG becomes available due to the shutdown of RLNG power plants for conversion to combined cycle. This arrangement will continue until October 2017.

It was noted that Pakistan LNG Limited (PLL) should plan the procurement of LNG cargoes according to demand and hence “a risk-mitigation strategy” should be evolved to avoid a situation where LNG cargoes cannot be re-gasified because no gas off-take is available. Therefore, cargoes are being delayed and PLL has currently not procured LNG cargoes for July or August 2017. Further delays in procurement could attract liquidity damages from international LNG suppliers.

After due and extended deliberation, Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi has concluded that the only viable option to avoid financial exposure due to lack of gas off-take is to move the commercial operation date of the second LNG terminal to September 1, 2017.

He has also asked the managing director of Pakistan LNG Terminal Limited (PLTL) to negotiate an arrangement with contractors of the second LNG Terminal revised the commercial operation date to September 1, 2017, provided that there was no adverse material change in the original agreement.

Published in Dawn, June 19th, 2017