June 21, 2007

Engro Energy Limited (EEL) has pointed out that permeate gas from Qadirpur field, being operated by OGDCL, has been flared for the past almost 10 years. It was Engro which identified this gas as a potential source of energy for power generation. Subsequently, the company applied for a power plant on an unsolicited basis (for which no advertisement or competitive bidding is required) to PPIB to utilize this resource of energy and construct an IPP of around 220 MW capacity, to contribute to national efforts to overcome energy crisis.

In response to a recent news item that appeared in Business Recorder the company said that the OGDCL confirmed the availability of 75 MMSCFD permeate gas to Ministry of Petroleum and Nautral Resources (MoP&NR). The ministry in turn moved a summary to the ECC which approved this gas for a power plant and placed it in the custody of PPIB for allocation to an IPP.

The PPIB then processed Engro’s application on merit and then made the allocated using their internal approval procedures. It is to be noted that other gas thermal IPPs e.g. Saif, Sapphire, Orient, Halmore, Fauji & Star were also allocated gas on unsolicited basis in the same manner.

Regarding the gas sale agreement (GSA) the company says that Engro IPP is an unconventional project using low BTU permeate gas with very high sulphur which is an off gas from the gas treatment plant of Qadirpur field.

OGDCL is the gas producer while SNGPL is a gas supplier. Therefore, OGDCL will have to sign a GSA with SNGPL while EEL will sign with SNGPL as per ECC’s decision.

As the gas will be supplied from one dedicated source as against SNGPL system, there are certain operational/commercial issues inherent to this peculiar nature of the above- mentioned gas supply system.

In order to realize this project in the larger national interest, EEL has done substantial consultation with OGDCL, SNGPL and WPPO to identify such issues. It has further proactively suggested potential solutions or resolutions under the leadership of PPIB which are expected to be resolved soon. Also, appropriate allowance has been requested in EEL petition to NEPRA to address such issues and to avoid unnecessary LDs to OGDCL / SNGPL. The allowance requested by EEL from NEPRA is much lower than the one approved for other gas thermal plants.

The GSA negotiation process between OGDCL & SNGPL and EEL & SNGPL have begun where such issues will be resolved to the satisfaction of stakeholders.

As the permeate gas has to be utilized to avoid wastage, OGDCL & SNGPL require higher take or pay clause which has to be agreed by power purchaser (WPPO). This can be achieved if EFL power is dispatched by WPPO when available requiring a higher merit order. Accordingly, WPPO has requested to rationalize permeate gas price which otherwise has a negative economic value. This gas price issue is also being addressed by PPIB.