PLTL puts LNG supply in jeopardy

ISLAMABAD: Pakistan LNG Terminal Limited (PLTL) has terminated the Operation and Services Agreement (OSA) with LNG terminal owned by PGPCL because of failure in depositing fresh credit rating guarantee equal to $10 million in cash or asset value of $15 million.

This dispute may expose Pakistan to another penalty if the aggrieved party moves London Court of International Arbitration (LCIA). In this dispute, the LNG supply chain can also be disrupted, which may damage Pakistan’ economy at the maximum, a top official at Petroleum Division stated this while sharing development with The News.

“It was not required to terminate the agreement but because of fear of NAB, PLTL management apparently took the decision to issue to PGPCL the termination notice of the Operation and Services Agreement (OSA) with LNG terminal.”

Special Assistant to Prime Minister Nadeem Babar, when contacted, confirmed the development saying both the parties -- PLTL and PGPCL -- have been asked to hold meeting on Monday and try to settle the dispute amicably. He said Petroleum Division is on it keeping in view the sensitivity of the issue.

A senior official of PLTL, when contacted, said that after termination notice the ball is in the court of the government as to whether it takes the control of terminal or not. However, after invoking the clause 37 of OSA till the settlement of dispute, both the parties can continue to discharge their duties by maintaining the status quo and in case of failure, the matter would go to London Court of International Arbitration. He said if PGPL files the case seeking penalty of over $1.5 billion, PLTL will also contest the case seeking the damages in dollars too.

Meanwhile, PGP Consortium Limited (PGPC) in its response to purported ‘Termination Notice’ terms the PLTL action illegal saying any termination of such contract by recourse other than through the procedures laid down in Clause 37 (Dispute Resolution) of the OSA amounts to willful misconduct and is illegal and of no lawful effect. Moreover, any act in furtherance of the purported termination of the OSA will also amount to willful misconduct and accordingly be illegal and without lawful effect.

PGPCL has also rejected PLTL’s contentions in its letter alleging Operator Default in terms of Clause 29.4 (Adequate Assurance of Performance) of the Operation and Services Agreement dated July 1, 2016.

Both the parties are bound to settle the issue after invoking Clause 37 of the OSA for Dispute Resolution and if they fail within 90 days, the matter will go to London Court of International Arbitration (LCIA).

Fasih Ahmed, CEO of PGPCL, also responded with inputs from advice from his attorneys saying,”We are prepared to seek legal recourse not limited to damages under all heads available as per law, which may include, besides others, liquidated damages, damages for loss of business under the contract, loss of earnings and profit, loss of capital, loss of human resources, damage to commercial and personal reputation, lost business opportunities, and any and all other loss or damage suffered, which, at present and without prejudice, is tentatively estimated to be in excess of $1.5 billion.”

He also says, “Although we hesitate to burden the country with such a huge liability, particularly with such instances as Reko Diq and Karkey before us, we are also entrusted to act in the interests of PGPC, its members and shareholders. We, therefore, hope that you will not compel us to take the route which other companies have been forced to take when faced with such irresponsible and impetuous conduct, violative of fundamental rights, on the part of authorities purportedly acting on behalf of the government of Pakistan.”

In its response to PLTL, he further says, “We want to serve Pakistan, and avoid casting upon it a burden of damages. Nevertheless, under the present circumstances, we are constrained to invoke Clause 37 of the OSA for Dispute Resolution. The name of our representative will be relayed to you accordingly. You are, therefore, called upon to name your representative to settle the dispute amicably within a period of 90 days, failing which the matter will be referred to international arbitration under London Court of International Arbitration (LCIA) Rules for binding settlement of the dispute between the parties. We emphasise that any action by PLTL to take over our facility or any impediment from PLTL in our running of the business shall be considered as a hostile act, in violation of the OSA, and it will evince PLTL’s intention not to resolve this matter amicably, thereby releasing us from the 90-day amicable settlement period of the dispute. We would then immediately move for international arbitration in London.”

“Meanwhile, we expect the parties to continue to perform their respective obligations under Clause 37.9 of the OSA as agreed upon.”

PGPCL in its detailed response to PLTL built up its case saying that and Pakistan LNG Terminals Limited (PLTL) corresponded on the matter and reached an agreement to create a charge on the fixed assets of PGPC as Adequate Assurance of Performance. (Correspondence on the matter, which is self-explanatory, and the agreement arrived at pursuant thereto are henceforth collectively the “Agreement.”) “As you (PLTL) are aware, after extended negotiations, PGPC shared the final version of the Letter of Hypothecation (“LOH”) as Adequate Assurance of Performance with PLTL via our 3:07 pm email of Sept 27, 2019 (the “PGPC Offer”), to PLTL. In this, we intimated that “the changes proposed [to the LOH] through the email be signed at the earliest.” PGPC also pointed out that: “Separately, for creation of mortgage on land and building, valuing less than $1 million, we will share the draft of the deed of mortgage to be agreed between the parties. However, it can be signed after taking the Permission to Mortgage (PTM) from PQA and NOCs from the title deed holder. We will start the process of obtaining PTM and NOCs immediately however it will take time therefore we proposed that signing LOH for charge on fixed assets should not be linked [to] registration of mortgage.” [Emphasis added.] Through the same email, PGPC sought confirmation of the “above understanding” to send PLTL the “signed LOH for countersigning.”

PLTL also mentions saying it unconditionally accepted the PGPC Offer vide its 6:17 p.m. email of the same date from PLTL (“PLTL Acceptance”) which stated, “Agree with the changes made by you. Kindly proceed with LOH and mortgage of land & building and share scanned copies.”

PGPC says it provided the scanned copy of the LOH and the certified extract of its Board Resolution to PLTL vide its 4:42 p.m. email of Sept. 30, 2019. The email stated: “Please see attached as agreed the scanned copy of the LOH, and certified extract of Board Resolution, for creation of charge on PGPC assets. LOH and extract in original have been dispatched to Islamabad and will be delivered to your office tomorrow. Please countersign the LOH and send the original back to us along with the board resolution of PLTL.”

The action required of PGPC following PLTL Acceptance was promptly undertaken and a signed and executed LOH was delivered to PLTL by email on Sept. 30, 2019.

The hardcopy was stamped as received by PLTL on Oct. 1, 2019. As is manifestly evident from the above the Agreement had thus been concluded and the final signing of the LOH by you was a mere formality since all your requirements had been duly performed by us. But instead of signing the LOH you have arbitrarily chosen to renege on the above and sent us the so-called termination notice vide the Letter.

The purported termination notice is ineffective because your email of 6:17 p.m. on Sept. 27, 2019, and our full performance thereon, created a binding contract contained in the Agreement and has become final.

PGPCL argues saying, “Any termination of such contract by recourse other than through the procedures laid down in Clause 37 (Dispute Resolution) of the OSA amounts to willful misconduct and is illegal and of no lawful effect.

Moreover, any act in furtherance of the purported termination of the OSA will also amount to willful misconduct and accordingly be illegal and without lawful effect. Under the advice of our attorneys, we are prepared to seek legal recourse including but not limited to damages under all heads available as per law, which may include, besides others, liquidated damages, damages for loss of business under the contract, loss of earnings and profit, loss of capital, loss of human resources, damage to commercial and personal reputation, lost business opportunities, and any and all other loss or damage suffered, which, at present and without prejudice, is tentatively estimated to be in excess of $1.5 billion.”

Without prejudice to the above, PGPCL says in letter of June 3, 2019, PLTL had intimated that in the event a charge was not registered in favor of PLTL, you (PLTL MD) would opt to “withhold the amount of Adequate Assurance of Performance equal to ten million US Dollars (US$10,000,000).” Thus, by your own admission, and without conceding the need for any such measure to be taken, it is clear that you had an efficacious and effective remedy, if and when attracted, that did not entail a draconian and illegal termination of the contract.

As is clear from the foregoing, PGPC acted in utmost good faith in seeking to allay PLTL concerns and took all necessary steps to provide Adequate Assurance of Performance. The Agreement had been finalized between PLTL and PGPC, and, acting on it, PGPC had provided a signed copy of the LOH to PLTL. This clearly shows the bona fides of PGPC.

However, PLTL in an utterly mala fide manner has opted to unilaterally issue the Letter, at a stage when the negotiations had materialized in the shape and form of the Agreement and PGPC had initiated all requisite steps on its part.

This speaks volumes as to the callous attitude of PLTL, which has now put the entire energy supply chain of the country at risk.