Govt to start notifying CPPs for disconnecting gas supply this week

• IMF programme to be scuttled if process not completed in time.
• Official warns of $13bn loss in exports due to CPP's gas supply cut.
• Country risks losing global buyers' confidence, foreign exchange.
  

ISLAMABAD: The Petroleum Division is set to commence issuing notices to Captive Power Plants (CPPs) this week for disconnecting gas supplies under the $7 billion International Monetary Fund (IMF), The News reported on Monday.

Holding significance as one of the main structural benchmarks of the Fund programme, the process to cut gas supply is slated to culminate by the end of January 2025.

"If we do not initiate the process and complete it by the end of January, the loan programme will be scuttled," a senior official of the Energy Ministry told the publication.

More importantly, the country will brave a $13 billion loss in exports if CPPs are disconnected from the gas supply. 

Elaborating on the issue, the official said: "Exporters would further lose the confidence of global buyers due to a highly uncertain situation in Pakistan. Exports of industrial manufactured sectors will decline resulting in loss of foreign exchange, employment, services and revenue to the Federal Bureau of Revenue (FBR)."

He said there was also a potential risk of production losses as a direct consequence of unstable electricity supply from the national grid, subject to variations in voltage, frequency, or electricity supply, halting the entire production process.

However, he said, functionaries of the Petroleum Division during the last visit of the IMF mission from November 11-15 agitated the issue, arguing it would not only inflict damage of Rs392-400 billion in revenue to the gas companies but would also cause a decrease of $13 billion in exports.

The IMF was told that captive power plants are currently being supplied blended gas in the north of the country at Rs3,400 per mmbtu and in the south at Rs3,200 per unit.

The export sector uses 350mmcfd gas per day through CPPs. If this sector is disconnected, gas companies would not be able to sell this huge volume of gas to another sector at the current rate.

"This huge loss would also multiply the financial miseries of the gas sector as all categories of consumers have also reduced gas consumption by about 150 mmcf per month due to which the government has already asked Qatar authorities to shift five re-gasified liquefied natural gas (RLNG) cargoes to be imported in 2025 to 2026," remarked the official.

 "The Fund mission didn’t reciprocate positively but showed its willingness to discuss the matter. The IMF had included shifting of the industry to grid electricity for increasing the use of grid electricity in a bid to cope with capacity payments," he added.

The industrial sector says it requires stable and consistent power through reliable sources like natural gas to combined heat and power (CHP) systems to avoid jerks disruption in critical operations. Discos are unable to cope with outages and fluctuations to maintain stable and consistent power to the industrial sector, which may jeopardise the processing.

Their investment in units will become a sunk cost, and they will need to make additional investments for grid connectivity in case they decide to shift to power instead of opting for alternate fuels.

Given the sensitivity of the issue, on the directives of the prime minister, four federal ministers put their heads together on November 29, 2024, on how to handle the structural benchmark of the IMF programme.

The federal ministers of commerce and trade, petroleum and power attended a meeting chaired by Finance Minister Senator Muhammad Aurangzeb to work out the way forward for a solution to captive power plants issue.

"In the inter-ministerial meeting, the finance minister asked the Power and Petroleum divisions to come up with updated and correct data on the impact of severing captive power plants from gas supply so that it could take up the issue with IMF. The structural benchmark of the loan program cannot be changed at the staff level meetings of IMF, it can only be reverted by the IMF executive board," noted the Energy Ministry official.

However, the official said that shifting the industrial sector to grid electricity is not possible by the end of January as the Power Division has to install many grid stations and it requires at least one and a half years with liquidity of Rs25 billion to complete the process. 

He expressed optimism that the government may succeed in getting an extension by 6-12 months in cutting off the gas supply and shifting industry to grid electricity.

The government would inform the IMF that from January 1, 2025, the gas tariff for captive power plants would further increase at par with the cost of RLNG and they would not be provided with blended gas.