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Govt decides to acquire surplus capacity of LNG terminals to meet gas demand

Govt decides to acquire surplus capacity of LNG terminals to meet gas demand

ISLAMABAD: The government has decided to acquire surplus re-gasification capacity of the two existing LNG terminals to meet additional gas demand mostly in the private sector.

It also decided to induct Pakistan LNG Limited (PLL) in the gas import arrangement with Qatar on a government-to-government (G2G) basis.

This will limit the import business of Pakistan State Oil (PSO) — the pioneer of liquefied natural gas (LNG) imports into Pakistan — at existing level of about 500 million cubic feet per day (mmcfd), informed sources told Dawn, adding that these decisions were taken at a recent meeting of the Economic Coordination Committee (ECC) of the Cabinet.

Sources said the ECC was informed that government entities were “not utilising the existing re-gasification capacity of two LNG terminals which can provide a total of 210mmcfd additional capacity”. This included 60mmcfd spare capacity of the Engro terminal and 150mmcfd from the Pakistan Gasport terminal.

The Petroleum Division proposed that this additional capacity must be acquired to meet the shortage of system gas in the country. It was also noted that PLL had never been able to utilise 600mmcfd of full contracted capacity of the Gasport terminal and yet had been paying the full processing charges for max capacity while PSO had been more or less utilising at least 600mmcfd capacity of the Engro terminal. Engo terminal has about 690mmcfd capacity compared to about 750mmcfd of Gasport terminal.

The Sui Northern Gas Pipelines Limited (SNGPL) has been indicating gas shortfalls in its network, particularly in winter months. This is despite the fact that SNGPL’s major customer — the industrial sector — has been shifted to a fixed subsidised rate of $6.5 per million British thermal unit (mmBtu) at almost half the imported LNG price, creating an additional financial burden. The SNGPL has already demanded over 145 per cent increase in average prescribed prices to absorb this additional burden, currently under public hearing process of the regulator.

The Petroleum Division informed the ECC that being public sector entities, PSO and PLL were obligated to procure LNG in accordance with the provisions of the Public Procurement Regulatory Authority (PPRA) Rules, 2004. However, an open competitive bidding process as per PPRA rules may not be followed in the case of LNG suppliers under G2G arrangements.

Rule 5 of the PPRA provided exemption from competitive bidding in cases where international and inter-governmental commitments of the federal government are involved. Such commitments could also be created in future but invoking Rule 5 of the Public Procurement Regulations 2011 required the Petroleum Division to bring a case to the ECC to consider and authorise to proceed in terms of Rule 5 of the 2004 rules.

In order to import additional volume of LNG from QatarGas under G2G basis, the Petroleum Division on the request of the PLL, proposed that the latter should be designated as government entity instead of expanding the business role of the PSO. The ECC has already allowed formal negotiations with Qatar for additional 200mmcfd of LNG.

The Petroleum Division proposed to direct the Sui Southern Gas Company Ltd (SSGCL) and PLL to “assess and acquire additional available re-gasification capacity of their respective terminals beyond the existing daily average of 600mmcfd” and PLL be nominated “as government entity for import of additional LNG volumes matching the actual available additional re-gasification capacity at existing terminals”.

The Petroleum Division also demanded that instead of competitive bidding, an exemption be granted from the requirement of competitive bidding process by invoking Rule 5 of the PPRA 2004 for PLL besides authorising the existing Price Negotiation Committee (PNC) constituted by the PML-N government in Oct 2016 to “negotiate LNG pricing with QatarGas”

On the issue of assessing demand and procurement of additional available re-gasification capacity of LNG terminals, the ECC directed Petroleum Division to revisit future RLNG demand in view of the shortage of system gas, and contractual terms of the agreement with LNG terminal operators in a holistic manner and resubmit the proposal to the ECC in next meeting.

With regards to allowing PLL to import LNG from Qatar, “the ECC directed the Petroleum Division to resubmit the proposal with due reference to relevant clause of the Inter Government Agreement (IGA) between Qatar and Pakistan”.

The ECC also directed the Petroleum Division to submit the case for procurement of 200mmcfd from Qatar, directly to the federal cabinet.

The sources said the representatives of the Law and Justice Division explained that any state-owned company having more than 50pc share holding of the government could be designated entity in a G2G agreement. Therefore, the ECC directed that PLL may be designated as a government entity under the provisions of IGA between Qatar and Pakistan.