High fuel prices, cash crunch and dwindling energy supply are hampering power generation

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LAHORE: High fuel prices, cash crunch and dwindling global chain energy supply have severely hampered power generation, resulting in 6-14 hours of power outage per day in various parts of the country.

According to information shared by the Prime Minister’s Office, the load shedding today is almost entirely caused by acts of omission and commission by the previous government during the period 2018-22. Coupled with high and rising energy prices in the international market, Pakistan’s electricity sector is suffering greatly.

Consequently, the electricity deficit hovered over 7,000 MW in the country. People are braving long blackouts across the country with an electricity deficit reaching 7,787 MW. The total electricity demand in the country would be 29,000 MW and the total electricity generation in the country would be 21,213 MW.

In the current energy crisis, natural gas power plants, in particular, have been victims of the high import price of liquefied natural gas (LNG) and its shortage in the international market.

The current government has faced immense difficulties in sourcing LNG from the international market. Facing demand of up to 14 cargoes per month, the government was able to procure 8-12 cargoes on a monthly basis, leaving a huge LNG supply shortfall for power generation.

In the month of April, only eight LNG cargoes could be purchased for various reasons and all of them were under a long-term agreement. During the months of May and June, the purchase of 12 LNG shipments was made possible, including four and three cash purchases respectively, but given the high demand for electricity, the electricity deficit did not could not be filled effectively.

During the current mandate of the current government, spot purchases of LNG have been made to improve the supply of regasified liquefied natural gas (RLNG) to the electricity sector. The current government spent US$573 million on spot purchases of LNG from May to June 2022.

Although Pakistan State Oil and Pakistan LNG Ltd. are faced with the problem of huge claims against Sui Northern Gas Pipelines Ltd and the electricity sector, supply for electricity generation has been made as far as possible in relation to the increased demand. PSO’s shortfall in LNG payments in June 2022 is Rs 285 billion, while PLL stands at Rs 119 billion.

For LNG supply, PLL obtained exemptions from the PPRA rules on May 28, 2022 for cargoes to be delivered from July 2022. As a result, PLL started supplying July 2022 cargoes after May 28, 2022, with three tenders closed in June 2022. However, due to the country’s credit rating downgrade and LC confirmation issues, supplier participation remained lower.

To bridge the LNG supply gap, the current government is prioritizing liquid fuel supply for power generation. The Petroleum Division has played its part in organizing residual fuel oil (RFO) needs in accordance with the demand placed by the Energy Division. The oil industry arranged the product, but the actual increase remained lower than the demand placed by the Power division due to lower orders placed by power plants to petroleum marketing companies (OMCs) and payment problems.

Existing RFO stocks available to the oil industry as of June 30, 2022 were 277,000 MT, while two RFO cargoes of 130,000 MT are currently out of port. The import of approximately 180,000 MT is scheduled for July 2022. Thus, such arrangements are sufficient to meet the demand of 436,000 MT placed by the Power division in July 2022.

Another issue that has contributed negatively to the current power shortage crisis has been the slow pace of power projects being built. The delay in commissioning these projects has deprived Pakistan of cheaper, indigenous energy. Two projects, namely Karot Hydro and Shanghai Thar, were delayed: the first due to a lack of ownership and monitoring of the project and the second due to non-compliance with contractual commitments on already completed projects, delaying thus the financial close. The failure of the previous government to open a revolving account for completed projects such as Sahiwal Coal and Hub Power meant that there was no more funding for the power sector under the CPEC umbrella. The previous government did not understand CPEC’s energy framework or was simply there to strangle it to a slow but certain death.

The Karot Hydro with a generating capacity of 720 MW was scheduled to be completed in February 2022, however, the project began power generation in July 2022. Similarly, the 1,214 MW Shanghai Electric plan, which would be executed with Thar Coal, would begin production in May 2023 instead. May 2022 planned.

Similarly, another high-efficiency project, namely the Punjab Thermal RLNG power station at Trimmu, Jhang (1,263 MW), was delayed for more than three years by the PTI government, first due to its bad enthusiasm. placed for the witch hunt via NAB and then by its deliberate delay in achieving financial closure.

If these three projects with a capacity of 3,200 MW had been completed on time, there would have been no load shedding in urban Pakistan despite high energy prices on the international market. Two of them do not need imported fuel and the third is a high-efficiency LNG plant with over 60% efficiency, which is much more feasible than plants using imported coal or residual fuel oil .

Pakistan was also forced to purchase LNG at higher prices due to the previous government’s inability to secure long-term LNG contracts when the international LNG price was low. There was a lack of planning to execute a long-term contract for the purchase of RLNG. During Covid-19 (mid-2020), RLNG prices fell a lot in the international market, but this opportunity to buy RLNG at 3-5 USD per MMBTU was not taken by the government at the time and no long-term contact was made at that time. arrange. If such a contract had been signed, consumers would have faced much lower electricity bills.

The average purchase price of RLNG under the long-term contracts, which was signed by the PMLN government, was USD 8.02/mmbtu between 2018 and 2022, while during the same period, the average price on the spot was 9.44 USD. /mmbtu, despite a huge price drop for two years during the same period due to Covid. Much larger losses were incurred in recent months, where RLNG spot purchases reached US$38/mmbtu.

The current government has inherited the high cost of the dollar and the circular debt which have emerged as one of the biggest obstacles to solving the energy crisis. Circular debt in June 2018 was 1,152 billion rupees, which increased to 2,467 rupees in March 2022 with an increase of 114%, despite a major injection of taxpayers’ money. One of the major causes of this rapid increase in circular debt is the depreciation of the PKR value from PKR 115 per dollar to PKR 191 per dollar under the watch of the PTI government and under the watch of the interim arrangement that has been put in place. in place to bring the PTI government to power.

The increase in circular debt has affected the government’s ability to pay private power plants in a timely manner, which, in turn, has piled up coal-fired power plants’ liabilities and dried up their credit lines. So much so that three large coal-fired power stations with a total capacity of 3,900 MW have such low coal stocks that they are operating at partial load. In the case of a coal-fired power plant, the coal is stuck at Karachi Port as there is no money to liquidate the imported stock.

Finally, the rise in energy prices on the international market has reduced the current government’s options to meet the demand for LNG and coal outside the international market. Energy prices have increased by around 300% over the past 18 months.

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