Home Global Village PM considers overhauling as power sector erodes by 27 percent

PM considers overhauling as power sector erodes by 27 percent

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News Desk |

The Prime Minister Mr. Shahid Khaqan Abbasi on Thursday, 28th December, directed an overhaul of the power transmission, distribution and recovery processes of distribution companies (Discos) for cutting down inefficiencies, reducing administrative losses and to find a permanent solution to circular debt.

The meeting that the PM chaired was also attended by Minister for Power Sardar Awais Ahmed Leghari, Secretaries of Finance, Power and Petroleum Divisions, MD Pakistan State Oil and senior officers of concerned departments.

The meeting that was held at the PM Office to review issues related to furnace oil and petroleum, also reviewed availability and consumption of gas by the power sector. The prime minister directed for the composition of a high level committee to find solutions to the issue of circular debt.

Though refineries incurred major capital expenditure during 2016-17 to produce Euro-II grade low sulfur diesel, recently their output has been curtailed as the government shuttered furnace oil based power generation.

The committee would be led by the power minister and would include representatives of ministries of finance and power as well as the Petroleum Division. The meeting reviewed stock of the existing storage, production capacities of the local refineries and consumption. It was agreed upon to restrict import orders for the furnace oil.

Future import of furnace oil would be conditional to the approval from Cabinet Committee on Energy. The measure would help reduce import bill and ensure optimal activity of LNG-based power plants.

Read more: CPEC: Pakistan’s quest for energy security

The prime minister also advised the ministries of power and petroleum to ensure proper planning to ensure maintenance of required stocks of furnace oil to meet any emergency situation.

The power minister briefed the prime minister on steps taken by the ministry towards streamlining the provision of new electricity connections to the consumers. He said by January 15th next year, all pending 0.8 million applications, would be disposed of.

The closure of power plants will also negatively impact the oil marketing giant due to the possibility of further delays in the receipt of outstanding receivables from the power sector.

Furthermore, a system is being developed to ensure provision of electricity connections to consumers within 15 days of application, he added. The power minister briefed the meeting about steps taken to improve the performance of attached departments of the ministry.

With the operations of scores of inefficient thermal power plants hanging in the balance, the country’s listed power sector eroded by an alarming 27 percent in 2017, analysts said fearing several generators would go out of business as a capacity addition of over 14,000 megawatts (MW) was due by 2020.

Adnan Sami at Topline Securities spoke to a publication and said that despite being considered a safe bet (dollar hedge and high-yielding dividends), power sector saw its value collapse by 27 percent in 2017 versus a 10 percent return in 2016.

Read more: Minister of Power announces Pakistan has surplus energy

“The sector has been plagued with overdue receivables which have hampered few listed power producers’ ability to pay dividends,” Sami said adding while more recently, government’s push to eliminate furnace oil in lieu of cheaper fuels has raised concerns on their future profitability, as most of the producers were furnace oil based.

The prime minister also advised the ministries of power and petroleum to ensure proper planning to ensure maintenance of required stocks of furnace oil to meet any emergency situation.

Meanwhile, country’s electricity generation on residual furnace oil (RFO) plants declined by 46.9 percent despite a surge of 2.8 percent in the overall electricity generation in November 2017.

Arslan Soomro, advisor at Tundra Fonder, told a publication the struggling power companies were left with no other option than either to convert their plants to re-gasified liquefied natural gas (RLNG) or shut down and thus be eligible for guaranteed capacity payments only according to their power purchase agreement (PPA).

“Inefficient players such as Lalpir and PakGen are actually better off not generating electricity, as their profits drop if they generate and if oil prices are higher,” Soomro said.

Read more: Pakistan Atomic Energy Commission’s quest for civil nuclear energy

Future import of furnace oil would be conditional to the approval from Cabinet Committee on Energy. The measure would help reduce import bill and ensure optimal activity of LNG-based power plants.

The closure of power plants will also negatively impact the oil marketing giant due to the possibility of further delays in the receipt of outstanding receivables from the power sector, demurrages on RFO shipments that the company cannot unload and medium-term higher exposure to international oil price due to high inventory levels. Refineries, which supply furnace oil to power plants, have also come under pressure as the sector shed 32 percent in 2017 against a 65 percent return in 2016.

Though refineries incurred major capital expenditure during 2016-17 to produce Euro-II grade low sulfur diesel, recently their output has been curtailed as the government shuttered furnace oil based power generation. “This led to serious problems, where storage tanks were filled to the brim with furnace oil as power plants had ceased operations,” an analyst at Topline Securities said.


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