ISLAMABAD: 

Pakistan has managed to secure broad-based interest in the privatisation of multibillion-dollar liquefied natural gas (LNG)-fired power plants as a dozen global and local companies, including a military-backed local consortium, have shown interest by the end of the extended deadline.

As traditional aspirants, China and Saudi Arabia, have stayed away from the process, non-traditional investors from Japan, Thailand, the United Kingdom and Malaysia have come forward and submitted statements of qualification.

The Privatisation Commission had floated Expressions of Interest (EOI) in November last year, inviting local and global investors for the acquisition of nearly 2,500-megawatt two power plants, fuelled by Qatar’s LNG.

“Till the expiry of the deadline on Friday, 12 reputed international and local firms have submitted statements of qualification,” Privatisation Secretary Rizwan Malik told The Express Tribune. “We have secured sufficient competition and once pre-qualified, these companies can make four to five competitive consortiums,” said the secretary.

National Power Parks Management Company Limited (NPPMCL) owns the two power plants located at Balloki and Haveli Bahadur Shah with combined generation capacity of 2,453 megawatts. The government wants to sell NPPMCL in the hope of fetching a minimum of Rs300 billion or $1.5 billion in non-tax revenue.

In the next step, the Privatisation Commission will evaluate the prospective investors and pre-qualify them for taking part in the bidding process. Pre-qualified firms will have around two months for conducting due diligence of the power plants.

Once the due diligence is done, the Privatisation Commission will announce the bidding date. “We expect to announce the bidding date by the end of March,” said the privatisation secretary.

Adra Power, Malaysia’s second largest independent power producer, has submitted documents. Adra was the only company that had submitted the statement of qualification before December 23 – the original deadline, which was subsequently extended for three weeks. Out of 12, nine companies are from Europe and Asia, depicting broad-based interest in one of the largest privatisation transactions in the history of Pakistan.

Two companies from Qatar have submitted the statement of qualification. Nebras Power, Qatar, is a global power development and investment company. The other party is Qatar Investment Authority.

The two power plants are run by LNG that Pakistan imports from Qatar under a 15-year deal, signed in 2015. However, the Power Division has claimed that due to the availability of cheap alternative fuels, the consumers will have to pay extra Rs471 billion from 2019 to 2025, if these power plants are run on imported LNG.

Three Japanese companies have also shown interest in acquisition of the power plants. Marubeni is a major Japanese integrated trading and investment business conglomerate. Jera is a joint venture between Tepco FP and Chubu Electric Power and Mitsu and Co Japan has also submitted documents.

ASMA Capital Partners BSC of Bahrain has also shown interest. It is a multi-fund asset management firm incorporated in Bahrain. Global Power Synergy Company Limited, Thailand and Contours Global UK have also submitted documents.

Three local firms have submitted documents. A consortium of Fauji Fertiliser, Fauji Foundation and Mari Petroleum has come forward for the acquisition of the two power plants. Kot Addu Power Company and Atlas Power have also submitted bids.

However, China and Saudi Arabia have stayed away and their companies did not submit the statement of qualification till the closing time. In a bid to convince Chinese investors, the privatisation secretary met with the Chinese ambassador in Islamabad this week.

Chinese investors were reluctant to come forward due to the usual bureaucratic inefficiencies that had also delayed the sale of a majority stake in K-Electric to a Chinese company. The sale of Abraaj Group’s stake in K-Electric to Shanghai Electric has been delayed by over three years.

About 19 companies procured documents from the Privatisation Commission including around 14 foreign firms after the government invited the EOI.

The Rs300-billion revenue is very crucial for the finance ministry, which is already struggling to manage budget books due to an anticipated shortfall of Rs700-Rs800 billion in Federal Board of Revenue’s annual tax collection target of Rs5.5 trillion. The FBR has already suffered a shortfall of Rs284 billion in six months of the current fiscal year.

Published in The Express Tribune, January 18^th, 2020.

Natural gas futures sank below $2 per million British thermal units for the first time since 2016 as an onslaught of US supply from shale basins overwhelmed demand for the heating and power-plant fuel. Aside from a few brief cold snaps, the weather hasn’t been frigid enough to keep heaters on full blast and sustain a rally in gas prices. Though stockpiles ended last winter more than 30% below normal for this time of year, record production quickly replenished gas in underground storage. Since the shale boom began more than a decade ago, producers have been unable to shake off the supply glut that’s kept prices in the doldrums even as new pipelines and exports plants send unprecedented amounts of gas to Mexico and overseas. While drillers have been remarkably successful in ramping up output in recent years, their track record of doing so profitably has been mixed at best. “Prices have hinted at a break below $2 multiple times throughout the past year and it have fought hard to resist a complete breakdown,” said Daniel Myers, an analyst at Gelber & Associates in Houston. But the market finally caved as “Mother Nature pulls the rug out from under prices one more time.” The latest weather models show above-nor- mal temperatures across much of the East later in January, a sharp shift from earlier predictions for cooler conditions. That suggests a loss in demand for the heating fuel that’s “the biggest so far this entire winter season,” according to Commodity Weather Group LLC. Natural gas futures for next-month delivery fell as low as $1.998 per million Btu just before the end of trading Friday in New York, but settled at $2.003. Futures fell 26% in 2019, making gas one of the year’s worst-performing commodities. Prices last dropped below $2 in May 2016. Despite Friday’s slump, the gas market remains vulnerable to dramatic price spikes at the first sign of a polar blast. There are two months of winter remaining, and hedge funds are holding the largest-ever bearish position in the fuel.

Greece, Cyprus and Israel yesterday signed an agreement for a huge pipeline project to ship gas from the eastern Mediterranean to Europe. The 2,000km (1,200-mile) EastMed pipeline will be able to carry between nine and 12bn cubic metres of gas a year from off shore reserves held by Israel and Cyprus to Greece, and then on to Italy and other southeastern European countries. The discovery of hydrocarbon reserves in the eastern Mediterranean has sparked a scramble for the energy riches.

Greek Prime Minister Kyriakos Mitsotakis, Israeli Prime Minister Benjamin Netanyahu and Cypriot President Nicos Anastasiades joined the ceremony at which their respective energy ministers signed the deal in the Greek capital. The EastMed project is expected to make the three countries key links in Europe’s energy supply chain. The EastMed alliance “is of enormous importance to the state of Israel’s energy future and its development into an energy power and also from the point of view of stability in the region,” Netanyahu said in a statement issued as he left Israel for Greece yesterday. Mitsotakis said the pipeline was of “geo-strategic importance” and would contribute to regional peace. Earlier, Greek Energy Minister Kostis Hatzidakis called it “a project of peace and co-operation”.

Anastasiades said his aim was “co-operation and not rivalry in the Middle East.” Avinoam Idan, a former Israeli government security off icial who is now a geostrategy expert at Haifa University, said of the deal: “It’s important for Israel, it’s important for the transit countries, Greece and Cyprus, and of course Europe.” As the new source of energy would not compete with Russian supplies to the EU, “there is no reason to see it as a big change in the geopolitical dynamic in Europe’s energy market,” he told AFP. The Greek economic daily Kathimerini said on Wednesday that Athens and Nicosia had been in a hurry to finalise EastMed so as “to counter any attempt to stop the project.” The cost of the installation from the eastern Mediterranean to Italy is estimated at €6.0bn ($6.7bn).

Spain is undergoing the biggest overhaul of its liquefied natural gas system in an eff ort to boost its role as a key storage and trading hub for the fuel. With more LNG terminals than any other country in Europe, Spain is turning its domestic-focused network into one more accessible to global traders. Starting next year, the country plans to reform its storage limits and fees that have in the past deterred shippers from stockpiling and reloading LNG there. The timing couldn’t be better as new plants from the US to Russia add ever more LNG to a market in a market that’s already testing storage limits. That supply glut resulted in a record number of LNG cargoes sailing to Europe last month, a trend poised to continue through the rest of the year.

“The high costs of using Spanish infrastructure meant that Spain largely lost out to other European countries in the reload arbitrage to Asian markets in 2017-18,” said Leyra Fernández Díaz, a global gas analyst at Energy Aspects Ltd. “This will likely no longer be the case after the reforms.” Spain’s terminals have about the same combined storage capacity as its two closest rivals, Britain and France, put together, according to Gas Infrastructure Europe. Spain also boasts the oldest working terminal in Europe, with its Barcelona facility in operation since 1968. From October next year, LNG traders using Spain’s terminals won’t need so- called bundled deals that oblige them to deliver gas into the nation’s grid. They’ll also be able to tender for space over set periods, a common practice at other European hubs. “LNG storage capacity will be off ered as an unbundled service through regular auctions as standard products: yearly, quarterly, monthly, daily and intra- daily,” said Agustin Alonso of Spain’s National Commission of Markets and Competition.

“Users will have to pay the price resulting from the auction for the whole amount of the capacity booked, regardless of whether they use it or not.” It’s a departure from the present system, which is geared toward supplying Spain, the European Union’s sixth-biggest gas user. Daily fees are charged for storage and stiff penalties are imposed for those who exceed set thresholds including how long they hold supplies. Abolishing those penalties will cut about $0.56/mmbtu from the cost of storing a cargo for a month, according to Energy Aspects. That’s about 10% of the current benchmark rate for LNG in Asia, the biggest user of the fuel. That would be welcome news to LNG traders who this summer and autumn had little choice but to dump cargoes in Spain as a wave of incoming supplies filled Europe’s storage sites. While Spain did import LNG as utilities burned more gas, what traders often need is a place to keep fuel for re-exporting or for use in the future. A reduction in tariff s still needs to be approved by the CNMC. Capacity products will be available from October 1, and the first auction of the yearly products will take place in September. Spain may still have a way to go to rival the trading hubs of Britain’s National Balancing Point and the Title Transfer Facility in the Netherlands.

Both have extensive cross-border pipeline links and liquid trading markets that Spain lacks. “This initiative might increase trading in Spain a little bit but will it make any diff erence to European gas trading? I doubt it,” said Patrick Heather, a senior research fellow at the Oxford Institute for Energy Studies. Even so, the reforms complement plans unveiled earlier this year to treat all of Spain’s LNG terminals as a single virtual hub. The aim is to boost trading between the ports and reduce congestion at a particular location. Current rules make traders trade within a specific terminal. “Storing at onshore LNG terminals in Spain is to become more competitive than floating storage,” Energy Aspects’ Fernandez Diaz said. “The creation of the virtual LNG hub will abolish costly penalties for storing LNG.”

Natural gas is getting increased focus on the world stage as it provides the right balance of reliable and secure sources of energy, which can not only drive growth but also help address the environmental concerns, Qatar has said.
HE Minister of State for Energy Affairs Saad bin Sherida al-Kaabi, made this remark at the extraordinary ministerial meeting of the Gas Exporting Countries Forum (GECF) in Malabo, Equatorial Guinea.
The extraordinary meeting is held in preparation of the fifth Heads of State Summit, which will also be held in Equatorial Guinea.
Referring to the relevance of associating the UN Sustainable Development Goals with greater access to a versatile, flexible, economic, and clean source of energy, he said: “we are pleased to note the increasing attention natural gas is receiving as an important clean fuel in the global energy mix, and as a significant contributor to economic prosperity and environmental efforts to reduce emissions.”
Many countries around the world are reaching the conclusion that natural gas does provide the right balance of reliable and secure sources of energy, which can drive economic growth, and help address environmental concerns at the same time, said al-Kaabi, who led Qatar’s delegation.
Qatar will hold the sixth heads of state summit of GECF in 2021.

A slowdown in gas demand growth in China, the driver of global use over the past two years, is expected to slacken further, adding to investor concern as supply continues to build.
Consumption in 2021-2025 will grow at a slower pace than it has in the current five-year period, a researcher at China’s economic planning department said at the BloombergNEF summit in Shanghai on Wednesday. Furthermore, a weaker economy and rising imports via pipeline could shrink the share of liquefied natural gas in the overall Chinese market, according to gas utility ENN Energy Holdings Ltd.
The country’s overall gas use has expanded 9.5% so far this year, down from 18% in 2018, amid concerns that the slowing economy has prompted the government to focus less on pollution control, which had earlier helped spur demand for the fuel.
That contrasts with the boom in 2017-2018, when President Xi Jinping’s calls for blue skies sparked a race among local governments and businesses to switch millions of homes and factories from burning coal to using more of cleaner-burning gas.
The demand slowdown has pushed LNG prices in Asia lower by almost 40% this year, a slump also aided by China’s rising domestic output of the fuel.
China’s gas demand growth will likely slow over the duration of the 14th Five-Year Plan from 2021 to 2025 compared with current levels, Tian Lei, an assistant professor at the National Development & Reform Commission’s Energy Research Institute, said in an interview on the sidelines of the BNEF summit.
Consumption will probably be weaker at the start of the five-year period, before accelerating toward the end due to environmental pressure, he added.
A sharp deceleration in China’s economic growth – with gross domestic product expanding in the third quarter at the slowest rate in decades – coupled with rising pipeline imports following the start-up of the Power of Siberia line from Russia, could cut LNG’s market share in China and lower import growth, according to Mark Lay, deputy general manager of ENN.
China’s LNG imports gained 14% this year through October after rising more than 40% in each of the prior two years. Increased domestic gas production amid the nation’s efforts to bolster energy security will also erode overseas purchases, said Daniela Li, a BloombergNEF analyst.
Despite prospects of a slowdown, the current gas consumption levels still represent “extraordinary growth,” said Bernard Samuels, vice president of China gas development at Royal Dutch Shell Plc. The government’s plans for a national pipeline company could help lower prices for domestic customers and boost demand, he said.

Uniper SE is preparing to switch on more natural-gas plants as higher costs for carbon allowances shifted the economics of the power generation business away from coal.
Gas plants also are benefiting both from a slump in the price of the fuel. Uniper, one of Europe’s largest utilities, will bring back on line as much as 3.5 gigawatts of gas plants that were mothballed when market conditions were less favourable. That’s almost a third of its gas-plant capacity.
“Carbon markets have shown they work,” chief executive officer Andreas Schierenbeck said in an interview in Bloomberg’s office in Frankfurt. “This summer, carbon prices were very high and gas is very cheap, very competitive. The logic is clear: you need as much a double carbon certificates for coal than for gas.”
The remarks illustrate the latest shift in the ever-changing economics of generating electricity. While Chancellor Angela Merkel is moving to phase out the most polluting fossil fuels, emissions in Germany have actually risen in recent years as the government took nuclear plants off the grid, boosting the need for coal.
Now the government is seeking to remove both nuclear and coal plants from the nation’s power supply, eliminating about half of Germany’s power generation capacity. The rise in carbon costs has helped encourage that shift by making it profitable for utilities to switch on gas plants instead of coal.
The move will help Germany reduce pollution. Natural gas emits as much as 55% less carbon dioxide than coal. While the government is seeking to spur renewables to meet its climate commitments, industry executives, energy forecasters and investors say that more gas will be needed for the time being. Gas plants can help balance the grid until there’s enough wind, solar and battery capacity to ensure supply day and night and on breeze-free days.
“With the nuclear and coal exit, our gas plants will have to produce more,” said Schierenbeck. “We need more gas for power generation as a big part of our power plants is on the reserve, and we will probably take them out.”
Carbon permits under the European Union’s emissions-trading system, the world’s biggest cap-and-trade programme, were at €23.70 a tonne ($26.14) on Friday, 20% higher than a year ago. Analysts and traders expect that annual demand will outweigh supply at least until the mid-2020s.
German gas prices are 40% lower than a year ago. Weighing on prices are abundant supplies arriving both by pipeline and in LNG tankers. That has pushed storage levels to near capacity and well above the average for the past five years.
Uniper has the capacity to generate 10 gigawatts of power from natural gas in Germany. It will be one of the companies hit quickly by legislation to phase out coal in Germany. Some versions of the draft bill suggest the country will shut down 5 gigawatts of hard coal capacity by 2022.
Uniper owns more than 3 gigawatts of power plants that burn hard coal and is building another 1 gigawatt-plant in western Germany. It expects to get approval from the government to start operating that facility, named Datteln-4.
The new power unit has not entered service yet due to ongoing structural problems with its boiler. Uniper now expects to start it in the middle of next year. The company has argued that the plant should open despite Germany’s plan to exit coal.
“Datteln 4 will probably be the last new coal power plant we will see in Germany,” said Schierenbeck. “I would guess it would be also true for Europe. I have the feeling there’s understanding from the government that it makes sense to keep the newer and most efficient instead of the older and less environment friendly.”
Uniper is Europe’s fifth largest greenhouse gas emissions polluter in the power sector based on 2017 data, according to Sandbag, a climate change think tank in London.

By Ewa Krukowska, Bloomberg

The European Investment Bank adopted an unprecedented strategy to end funding for fossil fuel energy projects, in a move expected to support Europe’s plans to become the first climate-neutral continent.

The board of the Luxembourg-based lending arm of the European Union decided at a meeting on Thursday to approve a new energy policy that includes increased support for clean-energy projects. The bank will not consider new financing of unabated fossil fuels, including natural gas, from the end of 2021.

With more than half a trillion dollars in outstanding loans, the EIB is the biggest multilateral financial institution in the world. Given the EIB’s market impact and influence over the lending strategies of investors, its decision could end up depriving polluting projects from other sources of financing as well.

The lender’s move to prioritize energy efficiency and renewable-energy projects will reinforce the Green Deal being pushed by Ursula von der Leyen, the incoming president of the European Commission. She wants the institution to become a climate bank and help unlock 1 trillion euros ($1.1 trillion) to shift the economy toward cleaner forms of energy.

“Climate is the top issue on the political agenda of our time,” EIB President Werner Hoyer said in a statement, calling the decision to transition away from financing fossil fuels a “quantum leap in its ambition.”

The EIB decision is part of a broader push across the EU’s most powerful institutions that’s catapulted the bloc to the forefront of global efforts to fight climate change. New European Central Bank President Christine Lagarde has pledged to make climate change more of a focus for the institution, which is considering adding climate-related risks to its stress-test scenarios, in what could potentially make exposure to high-carbon footprint projects a liability for the balance sheets of financial firms in the continent.

The 28-nation EU wants to step up its climate ambition in sync with the landmark 2015 Paris agreement to fight global warming, after the U.S. turned its back on the accord. With EU leaders considering committing to climate neutrality by 2050, Europe is a step ahead of other major emitters, including China, India and Japan, which haven’t so far translated their voluntary Paris pledges into equally ambitious binding national measures.

“For the EIB to stop funding fossil fuel projects is a game-changer that begins to deliver the EU’s vision for climate leadership as laid out in the Green Deal,” said Eliot Whittington, director of the European Corporate Leaders Group. “We need this to act as an unequivocal signal into the financial system to encourage other multilateral lenders to follow suit.”

Von der Leyen, who is due to assume her new job as head of the EU’s executive arm in the coming weeks, also wants the bloc to raise its current target of cutting emissions by at least 40 percent by 2030 from 1990 levels. That may involve a reduction in pollution in the order of 50% or even 55% to counter the more frequent heat waves, storms and floods tied to global warming. Fossil fuels such as coal, oil and natural gas are leading contributors to climate change.

The EIB deal resolved a two-month deadlock where Germany and some central European nations sought to soften the proposed rules and make certain natural-gas projects eligible for financing. The strategy adopted on Thursday allows for continued support for projects already in the works that are vital for Europe’s energy security as long as they are appraised and approved by the end of 2021.

“Hats off to the European Investment Bank and those countries who fought hard to help it set a global benchmark today,” said Sebastien Godinot, economist at the environmental lobby WWF Europe. “All public and private banks must now follow suit and end funding of coal, oil and gas to safeguard investments and tackle the climate crisis.”

New Standards

The EIB new policy includes a new Emissions Performance Standard of 250 grams of carbon dioxide per kilowatt-hour, replacing the current 550 grams standard. That means that in order to qualify for financing, new power-generation projects have to be mitigated by various technologies that significantly improve their emissions performance, EIB Vice President Andrew McDowell said in a conference call.

The EIB, which last year invested more than 16 billion euros in climate-action projects, is preparing to play a larger role in spurring low-carbon technologies.

“This is not a last step, there are many more steps to come,” McDowell said. “But this is probably one of the most difficult parts of this journey that we’re having to take.”