Four IPPs withdraw final notices on payment of Rs. 5 billion

Posted on June 22, 2011. Filed under: Energy crisis, Finance, IPPs, Pakistan, PEPCO |

ISLAMABAD, June 21: Four independent power producers (IPPs) decided on Tuesday to withdraw their final notices seeking encashment of sovereign guarantees after they were paid Rs5 billion and assured that the remaining dues will be cleared before June 30.

An agreement to that effect was reached after negotiations between Water and Power Minister Syed Naveed Qamar and a delegation of IPPs, led by Mian Mohammad Mansha and Yousaf H. Shirazi.

The IPPs — Nishat Power and Nishat Chunian of Mian Mansha, Atlas Power of Yousaf Shirazi and Liberty Tech — with a combined capacity of 880MW had issued the final notice on June 15 to call sovereign guarantees and stop production because of non-payment of dues against electricity they had supplied to Pakistan Electric Power Company (Pepco).

According to sources, the IPPs initially took a strong position not to withdraw the notices till the clearance of full payment, but agreed to oblige on upfront payment of Rs5 billion and commitment for the release of Rs3.25 billion before June 30.

The IPPs were told that their claim of about Rs10 billion also involved about Rs2 billion still-tobecome-overdue bills under contractual obligations.

The sources said the crisis had been averted after Prime Minister Yousuf Raza Gilani approved last week a power ministry’s summary seeking payment of Rs11 billion for the IPPs. The remaining amount of Rs2.75 billion will be paid to some other distressed IPPs.

An official was of the opinion that the notices had automatically become ‘infructuous’ after the partial payment of dues. But an IPP representative said that was not the case, adding that the IPPs would have to write formal letters to banks informing them about their decision not to go ahead with encashment. Otherwise, he added, the banks were bound under the law to pay the quoted amount on behalf of the government on June 23. He said withdrawal letters would reach the banks on Wednesday.

On Saturday, the power ministry wrote a letter to the prime minister and requested him to personally intervene for releasing Rs11 billion urgently to contain the crisis and avoid international embarrassment. Till May 15, the government owed about Rs122 billion to all IPPs.

Under its sovereign commitment, the government is bound to make payments to IPPs if their power purchaser, Pepco/Wapda, fails to clear dues. The failure to make payments by the government after a 30-day notice is technically considered as ‘sovereign default’ which leads to negative ramifications for the country’s credit ratings and interest costs.

The IPPs served the first 30-day notice on the government on May 13 to start the process of calling sovereign guarantee for recovering their combined power dues of Rs16.5 billion. In response to the notice, the NTDC/Pepco released about Rs6 billion, but delayed payment of the remaining amount because of financial problems.

Despite an estimated payment of about Rs296 billion in subsidy to Wapda/Pepco during the current financial year against a budgetary allocation of Rs84 billion, the entire power sector, including private companies, was facing serious financial problems because of continuous increase in outstanding dues, resulting in lower than required fuel purchases and compounding electricity shortfall.

The government has picked up more than Rs300 billion arrears from power companies’ balance sheets and parked the amount into a newly-created Power Holding Company and raised almost an equivalent amount from banks to improve the power sector’s cash flows.

The government paid Rs40 billion alone as interest against these loans out of the federal budget and the amount is expected to reach Rs56 billion during the next financial year.

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Crude oil, natural gas: provinces to get less royalty

Posted on June 17, 2011. Filed under: Finance, Fossil fuels, Natural Gas |

JUNE 17, 2011


The budget for fiscal year 2011-12 envisages a reduction in the royalty on crude and natural gas, documents reveal. In 2011-12, royalty on crude oil is estimated at 14.8 billion rupees – 4.4 billion rupees lower than in the current fiscal year while royalty on natural gas for next year is estimated at 32.1 billion rupees – 2.4 billion rupees less than in the current fiscal year.

Well-placed sources told Business Recorder here on Thursday that, “the overall gas production in Pakistan is decreasing with each passing day. These days, about 200 MMCF shortfall in gas output has been observed. The overall gas production is now 3.6 billion MMCF per day reduced from 4 billion MMCF per day. Similarly, oil production has declined from 65,000 barrels to 61,000 barrels per day”.

Sources disclosed that the main reason behind lower gas and oil production is attributed to exploration activities that are simply not gearing up in Balochistan and Khyber Pakhtoonkhwa (KPK) – provinces beset with law and order issues that have put an effective stop to new foreign investments for exploration of gas and oil. Secondly, most of the old gas and oil wells are steadily losing their production capacity. The risks are simply too high in exploration in the oil and gas fields in KPK and Balochistan, sources added.

“When ‘Petroleum Policy 2001’ came into force, 84 areas throughout the country were identified for the exploration of oil and gas wells. Out of these 84, just 2 blocks have now been discovered but work on these two is still pending due to the negligence of the government and these oil and gas reserves have started depleting”, sources further revealed.

The government paid Rs 53.7 billion on account of royalty on oil and gas in 2010-11 while the total amount of royalty receipts paid to provinces on oil and gas during the last four years (2007-11) is Rs 165.4 billion. During 2010-11, Rs 8.6 billion were paid to Sindh province as royalty on crude oil; Rs 8 billion to Khyber Pakhtoonkhawa (KPK), Rs 2.7 billion to Punjab and Rs 2 million to Balochistan while a total amount of Rs 19.2 billion was paid as royalty on crude oil to the provinces in the current fiscal 2010-11.

Sources said, “During the last four years (2007-11), Rs 54.2 billion has been paid to the provinces as royalty on crude oil. The total share of Sindh in royalty receipts paid by the government during the last four years was Rs 18.6 billion; share of Punjab was Rs 8 billion, Rs 8.2 billion was given to KPK and Rs 6 million to Balochistan”.

Sources disclosed that Rs 4.4 billion was extended to Sindh as royalty, Rs 2.1 billion to KPK, Rs 1.7 billion to Punjab and Rs 2 million to Balochistan were paid as royalty on crude oil in the last fiscal 2009-10. Rs 34.5 billion has been paid as royalty on gas to the provinces during the current financial year with Sindh receiving Rs 25.9 billion, Balochistan Rs 3.9 billion, KPK Rs 3.6 billion and Punjab Rs 932 billion share in royalty on gas.

“During the last four years ( from 2007-11), Rs 111.2 billion have been provided as royalty on gas to the provinces with Sindh receiving Rs 57.6 billion, KPK Rs 2.5 billion , Balochistan Rs 13.2 billion and Punjab Rs 3.3 billion”, sources said. During 2009-10, total royalty paid to the provinces on gas stood at Rs 24.05 billion, with Sindh receiving Rs 17.2 billion, KPK Rs 1.2 billion, Balochistan Rs 4.5 billion and Punjab Rs 932 million.

Copyright Business Recorder, 2011

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Court suspends hike in power tariff

Posted on June 17, 2011. Filed under: DISCOs, Finance, Wapda / KESC |

PESHAWAR, June 16: The Peshawar High Court on Thursday suspended a recent SRO issued by the federal government for increasing power tariff for the consumers of Khyber Pakhtunkhwa to the tune of Rs1.0062/KWH.

A two-member bench comprising Chief Justice Ejaz Afzal Khan and Justice Mazhar Alam Miankhel put on notice the respondents including the National Electric Power Regulatory Authority (Nepra), Peshawar Electric Supply Company (Pesco), secretary ministry of water and power and others.

The bench was hearing a writ petition filed by the Human Rights Commission South Asia through its correspondent for Khyber Pakhtunkhwa, Advocate Abdus Samad Marwat, challenging the recent increase in power tariff on May 17, 2011, by the ministry of water and power on the approval of Nepra.

Following preliminary hearing, the bench decided to suspend operation on the said SRO and also directed the respondents to explain how the fuel adjustment surcharge could be levied on Pesco con sumers as the province was producing electricity through hydel sources?

The petitioner claimed that through the impugned SRO the government issued a new tariff increase for Pesco consumers, which would be adjusted for the month of March 2011 in the current monthly bills of 1.7 million consumers of Khyber Pakhtunkhwa.

The petitioner has requested the court to hold that all the tariff determination by Nepra till date were illegal, unlawful, without jurisdiction and thus of no legal effect upon the rights of the Pesco consumers.

Mr Marwat argued before the bench that tariff determination for distribution of electricity in Khyber Pakhtunkhwa was within powers and authority of the provincial government and Nepra had no jurisdiction in this regard.

He stated that earlier a writ petition was filed by the provincial government on the same issue but it was later withdrawn against the wishes of the consumers. He requested the court to summon all the record submitted in that case.

He bench observed that in future if the need arose, the court would summon that record.

Mr Marwat argued that more than 5,000MW hydel power was generated in the province of Khyber Pakhtunkhwa and its approximate consumption was 1,700MW. He added that keeping in view the ground realities, it was incumbent upon Nepra to supply 1,700MW and as such no loadshedding would result.

The petitioner stated that it was extremely brutal to impose upon the people of Khyber Pakhtunkhwa further increase in tariff when the province was providing hydel electricity at the rate of Rs1.01 per unit to Central Power Purchase Agency (CPPA) and buying the same at an average cost of almost Rs10 per unit from Pesco.

Mr Marwat contended that there was no Wapda thermal generation unit or IPP in the province and only the hydel generation electricity was supplied by Pesco and imposition of fuel adjustment charges on the people of this province was unjust and unconstitutional.

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Oil and gas areas to get five percent production bonus

Posted on June 16, 2011. Filed under: Finance, Fossil fuels |

The Ministry of Petroleum and Natural Resources has decided to grant production bonus to those districts where oil and gas reserves have been discovered, according to White Paper 2011-12 of the Government of Khyber Pakhtunkhwa Finance Department.

The funds will be spent through Petroleum Social Development Committees (PSDC) comprising MNAs, chairmen, MPAs tehsil taluka nazims, district nazim members, DCO (Secretary) of the district and two representatives of the exploration and production company member/vice chairman.

Secretary of the PSDC (DSO) will open and administer a joint bank account with the title Petroleum Social Development Fund (PSDF), to be operated by District Co-ordination Officer and the Executive District Officer (EDO) Finance and Planning for the purpose of funding projects identified by the PSDC through the production bonus payable by the E&P company.

All those E&P companies who are obligated to pay production bonus to the government for infrastructure development of the area will deposit the production bonus directly in the bank account of the Secretary (DCO) of the PSDF in consultation with the Director General, Petroleum Concessions (DGPC). The proceeds of first production bonus against Tal black of MOL was $5,00,000 (Rs 29.486 million), which had already been deposited in the account of DCO, Karak and DCO, Hangu during the year of 2008-09.

Second production bonus against the Tal Block of MOL was $1 million (Rs 85.809 million), which had been deposited in the account of DCO Karak and Hangu amounting to Rs 66.963 million and Rs 18.846 million respectively during the financial year 2010-11.

Third bonus, of $1.5 million, may become payable against the said block during next financial year of 2011-12, and will be directly paid by the respective exploration and production (E& P) company to the concerned districts governments under the existing guidelines of productions bonus.

The provincial government has also decided to transfer 5 percent shares of receipts on account of oil and gas receivable from federal government to the respective districts where wellhead of oil and gas are located.

In this connection, report of the committee, headed by KP Chief Secretary, regarding utilisation of 5 percent share has been approved by the provincial cabinet. The said 5 percent share will be over and above the size of District and Provincial ADP and will be utilised on electricity, supply of gas, education, technical education, water supply schemes, roads and health facilities.

Utilisation of 5 percent share in the socio-economic condition of the area. For the financial year of 2010-11 a sum of Rs 25.185 has already been allocated and released to concern Districts–Kohat and Karak–as 5 percent share of royalty on oil, gas excise duty on natural gas and gas development surcharge.

Moreover, the last instalment of Rs 42.071 million is also paid to Sui Northern Gas Pipeline from the provision of 5 percent share from the current financial year for providing gas facilities to the natives of the district Karak and Kohat which has been approved by the Ministry of Petroleum and Natural Resources.

Beside hydel resources, the province of KP has been blessed with large reserves of oil and gas. After 18th amendment, provincial govt has equal share with the federal govt in all the forthcoming production regarding oil and gas.

Keeping in view the Eighteenth amendment, provincial cabinet has given the approval of establishment of oil and gas exploration company. The company will be registered soon with the Securities and Exchange Commission of Pakistan (SECP) and other relevant institutions.

After registration, this company will be like OGDC, MOL and PPL in different blocks. In compliance with the decision of Peshawar High Court under Article 158 of the Constitution, all commercial undertakings, like CNG etc, in the province are exempted from load shedding.

Copyright Business Recorder, 2011

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