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Industry suffers as gas dispute erupts

March 30, 2018

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The BQPS plant is unoperational due to a dispute between KEL and SSGC.
The BQPS plant is unoperational due to a dispute between KEL and SSGC.

KARACHI: Industrial activity in the port city was caught in the crossfire on Thursday as a dispute over payment arrears between Sui Southern Gas Company Ltd (SSGCL) and K-Electric Ltd (KEL) erupted suddenly.

K-Electric is SSGC’s largest customer, and in a midday public announcement, claimed that its request for enhancement of supply of natural gas due to onset of summer demand has been ignored by the gas utility.

Karachi is in the midst of heatwave-like conditions, and demand for electricity has spiked since the start of the week.

KEL had asked SSGC for enhancement of gas supply, which it says is currently at 90mmcfd, so it can operate its Bin Qasim Power Station (BQPS) generation units, which run only on gas. “We need at least 190mmcfd to operate this unit, and cannot run it on the current supply,” said Sadia Dada, spokesperson for KE while speaking with Dawn.

K-Electric and SSGC stand-off causes 500MW power shortfall in metropolis

“As temperatures rise, the peak demand touched 2,600 megawatts on Wednesday and is expected to continue escalating in coming days,” the company said in its announcement. “Due to a reduced gas supply, 500MW gas-fired plants are currently not operational creating an additional shortfall in the system.”

Industrial areas began seeing power cuts of up to seven hours from late night Wednesday. On Thursday they received a notice saying that another power cut should be expected by midnight, to last till 4:00am, though sources in SITE industrial area said that they expect revival of power to take much longer.

The city’s industrial areas have not experienced loadshedding in many years since the power utility exempted them from the practice. As a result, most industries do not have backup captive power plants. “We have offered to arbitrate this dispute between SSGC and KEL to end the stalemate,” said an irate Zubair Motiwala, one of the leaders of the SITE Association of Industries (SAI). “Even the chief minister Sindh offered to arbitrate, but was told by the SSGC managing director that no meeting is possible before April 5.”

The Bin Qasim Association of Trade and Industry (BQATI) also conveyed its alarm over the situation. Rasheed Jan Mohammed, former president of the association, said that the situation was critical as it would badly impact industry. “Gas supply must be raised to enable KEL to fully utilise its generation capacity and cater to the growing demand for power, especially in the summer,” he said. “This is critical to avert any revenue impact on the industries due to additional loadshedding that may happen,” he added.

In official remarks, SSGC first said that it has not curtailed supply to KEL. When told the matter is about refusing a request for enhancement of supply to meet higher generation needs due to onset of summer, Shehbaz Islam, the spokeperson for SSGC said his company cannot meet the request for enhancement of supply without hurting domestic consumers. “Our first priority, as per government policy, is to domestic consumers. Our second priority is to those with whom we have a Gas Sale Agreement, and the third reason for not honouring KEL’s request is their failure to make timely payments on outstanding amounts owed to SSGC,” he said.

KEL bristles at this characterisation of the dispute. “We have chased SSGC for a long time for a GSA, even sent them written drafts of an agreement in line with national gas allocation policy, but no response thus far,” said Ms Dada. “And KEL only owes SSGC less than half of what the Karachi Water and Sewerage Board [KWSB] owes us, yet we do our best to supply KWSB uninterrupted power despite their mounting dues also in the greater interest of the citizens of Karachi,” she added.

SSGC claims it is owed Rs78 billion by KEL, but the amount is disputed. “The principal amount we owe is Rs13.7bn at the moment,” said Ms Dada. “Any other amount, whether late payment surcharge, mark-up or interest, is sub judice and therefore not included here.”

She said KEL has not missed a single current payment over the past five years since the agreement for repayment the recognised outstanding amount of Rs24.5bn was reached. About Rs10bn of that has been paid as per a payment plan that was agreed at that time.

Another source in SSGC, who did not wish to speak for attribution, told Dawn that the whole dispute is solely about the outstanding payments. “We received a request for enhancement of supplies from them awhile back,” the source said. “To which we wrote back basically saying pay us our outstanding dues and you will get your gas.”

A source in KEL, who also requested anonymity, told Dawn that the matter of enhancement of gas supply to meet rising summer demand was first raised with SSGC in February. “When there was no response to that initial communication, a meeting was held in Governor House on Feb 28,” the source said. After that, a letter was sent on March 7 to SSGC, again raising the issue of enhancement of gas supply.

“Reduction of 20mmcfd of gas results in a 100MW reduction in power supply” that letter states, a copy of which is with Dawn. It states that last summer’s average gas supply was 166mmcfd, lower than 208mmcfd and 193mmcfd for the years 2015 and 2016, respectively.

The dispute has taken its toll already, in less than 48 hours. “This is absolutely wrong,” said Motiwala, his voice soaked with indignation. “The dispute should be resolved on the table, but instead each side is trying to pressurise the other and in the meantime industry is hurting. Can you give me those days of loss back?, he asked.

Published in Dawn, March 30th, 2018