Government will not provide sovereign guarantees for fuel supplies to new independent power producers due to the proposed privatization of Pakistan State Oil and Oil and Gas Development Corpora-tion.

Sources, however, exp-lained that government would continue providing sovereign guarantees on behalf of purchasers, although most of the power companies are also on privatization list. The difference here will be that National Transmission and Dispatch Company and Central Power Purchasing Authority will remain in public sector.

Sources said Petroleum and Natural Resources Ministry had informed Private Power and Infrastructure Board - a one-window facilitator - that government would not provide guarantees on behalf of fuel suppliers because they would switch over to the private sector soon.

Government provided sovereign guarantees on behalf of PSO, OGDC and several other fuel suppliers to all the existing IPPs as part of their 25-30 year agreements to ensure uninterrupted fuel supply. Since these fuel suppliers were in government sector, the government was liable to heavy damages in case of inadequate fuel supply by any supplier.

Although none of the suppliers ever defaulted, the guarantee was seen as a liability. The government would, however, continue to fulfil its obligations vis-à-vis the existing IPPs for remaining period of agreements.

Sources said petroleum ministry felt the new IPPs should enter into fuel supply contracts on their own. Currently, the government guarantees also cover any fuel supply disruptions even if these are in the shape of gas disconnections as a result of terrorist attacks on pipelines.

Government has announced an upfront tariff for all categories setting up of IPPs on gas, oil and dual fuel and because of the looming power shortage. Government expects to face an electricity shortfall of 5,500 mw by 2011 and is now even considering allowing refurbished and second-hand power plants to meet shortages.

Some groups are already negotiating with the government for second-hand plants. A few months ago, Wapda was allowed to rent a couple of old plants for three years to overcome immediate shortages.

A source said government had barred Private Power Infrastructure Board from allowing oil and gas based projects without prior approval of cabinet to check the projects based on imported fuel.

Projects will also be awarded on the basis of international competitive bidding wherever producers are providing natural gas to the government and the government allocates it for power sector.

International competitive bidding basis will also apply to oil or dual fuel projects. All projects, for which a feasibility report is prepared, will be offered to private sector on the same basis.

This means that government guarantees would be available to all power projects regardless of capacity, provided the power purchaser is a federal entity and its tariff is approved by the National Electric Power Regulatory Authority.