Unraveling the real gas supply situation

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Karachi: The advent of summer has brought with a fresh spurt of load shedding across Karachi.  The current power outages situation worsened at the fag end of March when K-Electric (KE) alleged that it had resorted to load-shedding due to reduced gas supply from SSGC.  KE’s argument was that it faced a gas shortfall to run its 500 MW gas-fired plants, but since SSGC was not providing it adequate gas supply, it has to resort to load shedding.  For the last three weeks, KE has been sending daily SMSs to all its customers, announcing  load shed hours and in the same breathe conveniently stating that the power outage is due to ‘gas supply issue’.

Clearly, the reduced supply ‘issue’ was not a bolt out of the blue for KE. SSGC has time and again reiterated that it is facing continuous gas shortage due to ongoing depletion of reservoirs in different gas fields owed by E&P companies. With domestic gas demand constantly on the rise, currently SSGC is faced with a widening demand-supply gap of natural gas. The gas utility is coping with this shortfall by enforcing Government of Pakistan’s Gas Load Management Plan through which gas is provided first to the domestic sector followed by other sectors.

In order to provide natural gas, SSGC has a Gas Sales Agreement (GSA) with each of its 2.9 million customers except KE. It has been forty years since KE (then KESC) inked an agreement with SSGC for supply of 10 MMCFD.  In 1978, there was no issue of demand and supply and gas was available in abundance. Despite the absence of a GSA, SSGC has been providing reasonable volumes of gas for a long time. Even today when KE is harping on the same tune of insufficient gas, SSGC is providing the power company eight times more than the volume agreed in the original GSA, just so that the people of Karachi do not suffer from prolonged power outages.  On its part, SSGC has made numerous attempts to bring KE to the table to sign a fresh GSA, yet all its efforts have so far gone in vain. KE, on one pretext or the other, has avoided negotiating and signing GSAs with the gas utility.

While KE was ascribing additional load shedding purely to gas supply shortage, NEPRA’s five-member committee visited K-Electric from April 11 to 13, 2018 to investigate the situation on the ground.  NEPRA’s findings exposed what the authority termed as KE’s ‘irresponsible approach’ and blamed its practice of unplanned load shedding due to its ‘fragile distribution system’.  The Committee noted that KE had failed to utilize the available infrastructure for alternate fuel/high speed diesel at its two gas turbine based power plants of Korangi Combined Cycle Power Plant and Bin Qasim Power Plant (BQPP) II.  The Committee observed that had these systems been in place, additional load shedding could have been avoided.  The Committee also noted that had BQPP-1 plant been fully utilized, load shedding could have been further minimized.

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NEPRA’s visit and decisions could not have come at a better time as the Authority’s findings truly justify SSGC’s position of low gas supply that KE used as a pretext for additional load-shed. Instead of setting its priorities right, KE has unjustly seen it fit to attribute additional load shed in the city to ‘inadequate’ supply from SSGC.

While on one hand, SSGC has been providing reasonable volumes of gas and at many occasions much more gas than the current supply of 90 MMCFD, KE has repeatedly defaulted on its payments and has overdues of around Rs. 80 billion.  This overdues figure includes amount accruing to Late Payment Surcharge (LPS) that has jumped to nearly Rs. 50 billion after KE stopped recognizing it some eight years back.  KE stubbornly maintains that the issue of LPS is sub-judiced and its principal outstanding amount is Rs. 13.7 billion.  It would have been easy for SSGC to stop supplying gas to a defaulting customer, yet it carried on supplying gas to KE in significant numbers just for the people of Karachi.

While load shedding continued to make life miserable for the people of Karachi, in order to mitigate the power outages situation in Karachi, Chief Minister Sindh Syed Murad Ali Shah called the meeting of the top management of KE and SSGC on the 7th of April.  During the meeting, two issues were agreed upon by both the two parties: a) KE would furnish Rs. 6 billion Gas Security Deposit to SSGC equivalent to 3-months average billing of 150 MMCFD gas supply, which KE has started processing and b) SSGC would develop a Terms of Reference (ToR), with KE and SSGC being the two signatories, for the appointment of one of the top independent chartered accountancy firms whose scope of work would include reviewing and analyzing financial Statements and other relevant records of SSGC and KE from 2004-05 to date, and consequently determine the amount payable by KE to SSGC since the former is disputing the amount it owes to the gas company.

The seriousness on the part of SSGC is evident from the fact that on Sunday 8th of April, the day after the meeting with the CM, SSGC’s Board of Directors held an emergent meeting and by mid-day Monday (April 9), the Company management had drafted and sent a Terms of Reference (ToR) for KE to consider and act to.  SSGC’s premise is very simple:  If KE agrees to sign the ToR and shows a strong intent to ink a fresh GSA, the Company will go all out to ensure that gas is curtailed from low priority sectors so that it can be channelized to KE for the people of Karachi.  Now it remains to be seen if KE will sign on the ToR with the same enthusiasm as SSGC has prepared it.  To date, KE has neither indicated the acceptance of contents of the ToR nor has shown any willingness to sign the ToR for resolving this contentious matter.

Like KE, SSGC is a legal corporate entity with an independent Board of Directors, with profit and loss accountability to its shareholders.  Is it wrong for SSGC to ask KE to sign a new GSA? Is SSGC unjustified in demanding overdues when it has to pay off the financial institutions, banks and of course the E&P companies it purchases gas from? SSGC’s keenness in finding ways to provide relief to the citizens of Karachi needs to be appreciated.  It is now up to KE to act responsibly to end the misery of Karachites.