The Sui Northern Gas Pipelines (SNGPL) has urged the Energy Ministry to retain Captive Power Plants with gas utility companies to prevent the risk of sovereign default and bankruptcy of state-owned enterprises in the RLNG supply chain.
In a letter to the Petroleum Division, SNGPL highlighted that the policy allowing the sale of indigenous gas at lower tariffs in RLNG areas, such as Punjab, has created market distortions. Opposing the imposition of additional levies on captive power beyond the RLNG price, it warned this could encourage a shift from the gas sector to third-party shippers or alternative fuels.
The SNGPL pointed out that while it can only sell gas at OGRA-notified RLNG rates, private parties can bring system gas into RLNG areas and sell it at lower rates. It suggested establishing a separate tariff for indigenous gas supplies to the power sector, allowing SNGPL to provide a blended supply during RLNG surplus situations, thereby reducing the cost of diversion passed on to domestic consumers.
The utility noted that industrial consumers are increasingly opting for cheaper indigenous gas, leading to a growing RLNG surplus. It emphasized that any policy decision to shift captive power plants from the gas grid to the national grid should be applied uniformly to both public and private sectors.
Under the guidelines of the International Monetary Fund (IMF), which SNGPL argues would be detrimental to Pakistan’s petroleum sector, captive power plants must be shifted from gas utilities to the national power grid. Rather than doing so, industrialists are turning to third-party shippers instead of the national grid due to prevailing high tariffs and unreliable supply.
The SNGPL further warned that shifting captive power to the national grid could bankrupt companies like itself and Pakistan State Oil, potentially leading to sovereign default. This, it said, would benefit third parties who are not being required to stop supplying captive power plants. Overall, per SNGPL, delinking captive power from the gas grid would reduce its sales and revenue and leave approximately 157mmcfd of surplus RLNG with no potential buyers.
This surplus, it warned, could climb to 400mmcfd by 2026 amidst reduced power offtake and K-Electric’s declining RLNG demand from Pakistan LNG Limited.
The SNGPL has proposed reviewing the policy allowing third parties to sell indigenous gas in RLNG areas and ensuring all available and upcoming indigenous gas is provided to gas utilities. It has further urged the government to ensure a level playing field and remove regulatory imperfections that favor third-party shippers.
The SNGPL has proposed implementing a national weighted average cost of gas to reduce the cost of RLNG plants and establish uniform pricing to eliminate market distortions.