The Economic Coordination Committee (ECC) of the cabinet approved changes to the gas sale agreements (GSAs) of three LNG-based power projects in Punjab — Balloki, Haveli Bahadur Shah, and Bhikki — on Wednesday in order to facilitate the proposed government-to-government (G2G) privatization of power plants.
Ishaq Dar, the minister of finance, presided over a meeting of the ECC that also gave Pakistan Railways permission to contract with the private sector for the laying of fiber-optic connections in exchange for a profit-sharing arrangement. It approved the pricing of urea for farmers at Rs. 2340 per bag and its incidental fees at Rs. 594 and Rs. 1008 per bag, respectively, for transportation from Karachi and Gwadar.
The government has been in talks with friendly governments in the Middle East for the sale of at least two LNG-based power plants — the most efficient so far — on a G2G basis to raise more than $2 billion direly needed to support the fast-diminishing foreign exchange reserves.
The financial advisers on these transactions had warned that without settling issues relating to gas sale agreements (GSA), power purchase agreements (PPAs), and debt recapitalization, the sale transactions would be affected.
The former administration informed the ECC that it had exempted the 66 percent take-or-pay condition in GSAs and PPAs in April 2021 and had also released them (practically Power Division) from the demand for an annual production plan for firm gas commitment by substituting a monthly gas plan.
The ruling was practically implemented, but the corresponding GSA and PPA revisions could not be given legal effect. The privatization of these power stations was subsequently delayed.
The Power Division has since come to the realization that the April 2021 decision needs to be reviewed in light of the exceptional increase in LNG prices in order to best utilize LNG for the continuous running of these power plants and ensure their operational security for the new buyer. Additionally, it suggested capping the amount of the gas sale deposit (GSD) that these plants must pay to gas companies at Rs 15 billion per plant rather than the significantly higher amount (Rs 60 billion) that was calculated under the previous arrangement at a price equal to one-fourth of the maximum LNG allocation.
In order to “protect the interests of the both purchasers and suppliers,” the ECC decided that the minimum take-or-pay commitment should be fixed at 33 percent rather than being fully eliminated as requested by the Power Division.
The GSD under the GSA would now be fixed at Rs15 billion per power plant rather than the former GSD of Rs60 billion, which is equal to one-fourth of the maximum gas allocation valued at the current relevant gas price inclusive of taxes.