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Thursday, February 15, 2024

Gov’t likely to make another blunder in LNG procurement

Shahzeb Khanzada on his show on 20th has revealed that the government of Pakistan is on its way to buy two of the priciest LNG deliveries for September 2021. The prices are set at 34.67pc of Brent for delivery on 16th September, and 24.5pc of Brent for 26th of the same month. He said that even if this tender is not accepted by PSO, Pakistan would be at loss as alternatives are expensive.

In his show on 20th August, senior journalist and host of “Aaj Shahzeb Khanzada Kay Sath” Shahzeb Khanzada accused the federal government of buying LNG at very expensive rates once again.

He said that the burden on Pakistan’s public with PSO’s latest tender for buying LNG in September and is at the highest-ever rates.

He said the government has again repeated its mistake and has opened the tender only 26 days before on 20th August. This has resulted in it the rates for 26th September delivery being at 24.5 per cent of Brent or around USD18 per million British thermal units (MMBTU).

On the other hand for the LNG delivery expected on 16th-17th September, the rates (offered by bidders) have been set at 34.67pc of Brent or USD25 per MBBTU, Khanzada claimed on his show.

He said that upon asking the PSO administration if they would accept the bids, they learned that the bids would be taken to the board, and the board would decide it keeping in mind the demand-supply situation.

Khanzada said, getting such a high tender is not worrying but repeating the mistakes as the incumbent government has been over months now, is a huge blunder.

He said that now if the bids are accepted, it will have a high burden on the national exchequer and if rejected and furnace oil is used, even that would be bad for the country.

It is worth mentioning that this LNG was priced at 10pc of Brent almost four months ago, but as the trend was downwards, the government decided to wait it out as it forecasted the prices to plunge even further, however, the forecast was wrong.

This has led to expensive purchases by the government in the previous months.

Shahzeb Khanzada also noted that compared to previous long-term agreements by the Pakistan government in previous regimes, if Pakistan State Oil (PSO) board accepts these two expensive tenders, it would mean that an excess of USD 85 million or Rs14 billion will have to be paid by Pakistan.

Similarly, compared to the spot price four months ago, when the LNG was priced at 10pc of Brent, the government will pay an excess of USD 100 million or Rs16.5 billion, given the PSO board accepts the tender.

All-in-all, Khanzada claimed that contradictory to the incumbent government’s claims that the long-term contracts signed by previous governments were bad for the national exchequer, their own buying of LNG on spot is proving unhealthy.

Read More: Pakistan misses shot, purchases LNG at all-time high

He said that this impact is also being carried forward in the sense that the price of electricity production is also increasing in the economy. In July 2021, Pakistan produced record electricity, however, the LNG bought was expensive, and less than what was required to fulfill the demand, the anchorperson claimed.

Increased Prices

This led to consequences. According to the document shown in the show, the fuel cost in Jul’21 is up 51pc YoY compared to Jul’20. The document further said, “RLNG-based cost of generation increased by 76pc YoY to Rs12.06/kWh due to 91pc YoY rise in RLNG prices to Rs2,065/MMBTU.”

According to the document by AHL research and NEPRA, the usage of furnace oil in power generation for the month of July increased 87.5pc YoY. The electricity generated under this will cost the consumers Rs17.10 per unit, Khanzada claimed. He added that even if the government bought LNG late, but had bought the right quantity to fulfill the demand, the Furnace Oil wouldn’t be used, and the electricity produced would still be cheaper by around Rs5 per unit.

The host claimed that the incumbent government had in 2019, put an embargo on the import of furnace oil, but today it is being imported, and that too at very high rates.

He quoted Hammad Azhar who in June 2021 said that the percentage of electricity generated via furnace oil will keep decreasing, even lesser than the 4.4pc it was at in 2020-21.

Khanzada said that only in the current year, the government has incurred a loss of Rs35 billion this year, and the current mismanagement will only cost people more. Additionally, if the tender is accepted, it will only lead to more loss, and the people will pay the price, while the government denies any mistake.

He said that the auditor general’s report agrees with the previous claims made by the media, that government has incurred losses of billions of rupees due to the mismanagement of timing.

He quoted the report saying that the government overlooked the increasing trend of demand for LNG in winter 2020 and that the week management and untimely decisions led to late buying of LNG.

The report also said that not using the LNG terminals at maximum has led to excess payments of Rs11.3 billion, Khanzada showed.

The former MD PLL Adnan Gillani talked to the host in April 2021, forecasting this crisis. He said that the government failed to capitalize on the cheap LNG prices, no new pipelines have been built and the consequences would be severe going forward in Winter 2021.

Read More: Hammad Azhar and Miftah Ismail lock horns debating energy crisis!