Severing CPPs’ gas supply will cause Rs400bn loss to govt: official

ISLAMABAD: The gas sector braving a circular debt of Rs2,700 billion (Rs2,000 billion and Rs700 billion as late payment surcharge) is facing another loss of Rs400 billion in revenue mainly because of the International Monetary Fund (IMF) conditions under which captive power plants (CPPs), set up for sustainable industrial activities, are being denied the supply of blended gas and the industrial sector is being shifted to the national grid for electricity.

“This huge loss would also multiply financial miseries of gas sector as all categories of consumers have also reduced gas consumption by about 150 mmcf per month. Due to this, the government has already asked Qatar authorities to shift five RLNG cargoes to 2026, which are to be imported in 2025,” a senior official at the Ministry of Energy told The News.

The Rs400 billion damage in revenue would further exacerbate the circular debt that already stands at Rs2.7 trillion, he added. “We have increased the gas tariff for CPPs from Rs2,570 per MMBTU to Rs3,000 per MMBTU which will further increase to Rs3,600-3,700 per MMBTU at par with the price of RLNG from January 1, 2025 as per the IMF conditions. But shifting the plants to the national grid for electricity supply will serve nothing but only expose the gas sector to another loss of Rs400 billion,” he explained.

The CPPs that produce electricity for the industrial sector, consume 350 mmcfd gas (blend of 200mmcfd of natural gas and 150mmcfd RLNG) and gas companies earn revenue of Rs400 billion from them against the gas sale. If all of the plants are shifted to the grid electricity, the system would brave a loss of Rs400 billion.

“The total number of CPPs stands at 1,180. In the Sui Southern system, the numbers are at 797 and in Sui Northern jurisdiction, there are 383. The captive power plants are the bulk gas consumers. If they go out of the system, with Rs400 billion loss, the authorities would have to find new gas consumers that use 350 mmcfd gas.”

The government, however, has already agreed with the IMF under its extended fund facility loan programme of $7 billion for increasing the gas tariff for CPPs at par with RLNG price from January 2025 and shifting them to the national grid electricity, which was a part of the prior actions for qualifying for the new IMF loan programme.

“However, it is the IMF board of directors that can approve the changes in structural benchmarks and prior actions if Pakistan effectively takes up again the CPPs issue with the Fund,” the official said.

The official said that KPMG — a well-known audit firm — has also recommended to the government not to disconnect the CPPs from the gas supply and also not force them to get shifted to the national grid for electricity, arguing there is no client at present in the system which can consume gas at the price of Rs3,000 per MMBTU.