$22 bn LNG deal being signed amid confusion

ISLAMABAD: The mega energy-specific multibillion dollars liquefied petroleum gas (LNG) procurement contract is expected to be signed next week amid confusion and apprehension with the government seeing no wrong, Transparency International Pakistan smelling a rat, whereas the Procurement Authority (PPRA) having no knowledge of the contract details.
Such has been the confusion about the project that Transparency raised the issue that the alleged $22 billion contract has already been awarded to a Qatari commercial group in violation of the PPRA rules.
Senior government spokesmen, when contacted, however, categorically denied that any contract has been signed as yet, adding that most of the media reports are based on speculation and are far from the facts. These authorities even reject the Transparency’s of late report on the subject.
Petroleum Minister Shahid Khaqan Abbasi told The News that the contract is expected to be signed next week and assured that the contract would not only be in line with law of the land and in accordance with the PPRA rules but would also bring LNG in the best price - the lowest in the region.
The Transparency’s main concern is that the LNG deal is being struck between PSO and Qatar Gas in violation of PPRA rules and without going through transparent bidding process. For TIP, this is corrupt practice and may involve massive corruption.
Abbasi, however, said the PSO is negotiating procurement of LNG from Qatar Gas under government to government arrangement as per PPRA rules with all required approvals including the ECC. He said a high-level price negotiation committee is overseeing price negotiations.
The minister added that Facts Global Energy, a top LNG consultant, is advising PSO through a USAID contract and according to the consultant best price is being offered to Pakistan.
The contract, the minister said, being negotiated is for 15 years with a volume of 1.5 million tonnes per annum with flexibility to ramp up to 3 MTPA. Qatar, he said, is the most reliable LNG supplier in the world with over one-third of world LNG supplies last year. “They are the only country which can offer long-term LNG contracts,” he claimed.
He added that the LNG is not a traded commodity in the world and has no benchmarks. “LNG term contracts are procured through a negotiated process; it is generally not possible to have term contracts through bids due to variety of factors affecting each supplier,” the minister said, adding, “The LNG producers worldwide do not participate in bids. Argentina and Egypt have tried LNG procurement through bids and have got high prices.”
He informed that India imports 14 MTPA of LNG including 8 MTPA from Qatar. They started in 2004. As per market information, they have signed $6 per MMBTU fixed price 25 year contracts and they have also signed 15.5% Brent + $1 price contracts. In 2014, he said, India bought $21 Spot LNG in February and $11 Spot LNG in August.
He hoped that Pakistan may get around $8 per MMBTU deal. He said the agreement is still being negotiated between Qatar Gas and PSO and the government expects the agreement next week.
To a question if the proposed contract has been vetted by the Law Ministry and seen by PPRA, the minister said that there have been no objections from PPRA and Law Ministry.
“Both are present in ECC meeting when the issue is discussed. The agreement will be placed before the ECC for approval when it is initialled.”
He said that the Law Ministry’s approval is not required. It is considered a commercial contract and vetted by PSO and approved by their BoD. It will also be placed before the ECC for approval.
He hoped that Pakistan price will be finalised around the 14% Brent level. He said that the LNG has no benchmark price, which is affected by many factors. Flexibility of a contract is key in the LNG contracts and in many ways more important than the price, he said, and added that Pakistan will have the lowest priced and most flexible contract in the current market.
Under PPRA rules, he said, a government to government framework agreement is required. Both governments, he said, have nominated state-owned entities who negotiate sale-purchase contracts.
Finance Secretary Dr Waqar Masood, when contacted, also see no PPRA rules violation in the project and added that not only the two state owned entities are signing the deal but both the governments would act as guarantors in case of their respective subsidiaries.
However, when Managing Director PPRA Nazrat Bashir was contacted by The News, she said that PPRA has no knowledge of the proposed deal and its details. She said PPRA could give its view about the adherence or otherwise of PPRA rules in this case only after going through the contract document.
The TIP, however, is found seriously apprehensive about transparency in the award of the project. In its recent letter written to the government, the TIP differed with the minister’s interpretation of PPRA rules and noted that the government of Pakistan and government of Qatar can negotiate an unsolicited contract under a treaty signed between the two states. However, according to TIP, the PSO is not government but a listed company. “According to PPRA rules, PSO or SSGCL are not allowed to award any unsolicited contract,” he said.