Pakistan to renegotiate LNG deal with Qatar if any irregularity proved

September 01,2018

The Federal Minister for Petroleum and Natural Resources Ghulam Sarwar Khan said on Wednesday that the National Accountability Bureau (NAB) is actively probing the 15-year liquefied natural gas supply agreement between the Pakistan State Oil (PSO) and Qatargas in February 2016.

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ISLAMABAD: The Federal Minister for Petroleum and Natural Resources Ghulam Sarwar Khan said on Wednesday that the National Accountability Bureau (NAB) is actively probing the 15-year liquefied natural gas supply agreement between the Pakistan State Oil (PSO) and Qatargas in February 2016.

If any evidence of irregularity, such as a violation of the Public Procurement Regulatory rules, is found, the government would seek to renegotiate the agreement, he told The News. Speaking to this correspondent on Friday after a meeting of the Senate Standing Committee on Petroleum, the minister said the NAB Karachi is actively investigating the long-term LNG deal with Qatar and the award of the contract for the first LNG receiving terminal.

When his attention was drawn to the binding take-or-pay terms of the agreement with Qatargas, Sarwar argued India has previously renegotiated the off-take volumes and prices of LNG deals with Qatar, Australia and Russia. He said a petroleum ministry committee is also examining the agreement with Qatar for any other lacunae.

At a Senate committee hearing chaired on Friday by Senator Mohsin Aziz of the ruling Pakistan Tehreek-i-Insaf, the managing director of PSO, Imranul Haq Sheikh, said a price negotiating committee had agreed with Qatargas on an LNG price equivalent to 13.37 percent of the rate, for the benchmark Brent grade of crude oil.

“Though the deal with Qatar can only be renegotiated after 10 years, if Pakistan formally contacts with Qatar, it may be possible to review the deal,” Sheikh said.

Mohsin summoned two experts -- Shahid Sattar, a former member energy of the Planning Commission, and ex-PSO executive Tariq Akbar -- to assist the senators in their grilling of government officials for flaws in the two agreements.

Mohsin questioned the differential in the cost of Pakistan's two LNG receiving terminals and asked why the sole operational facility at Port Qasim, owned by Engro subsidiary Elengy Terminal Pakistan Ltd, was being paid $272,000 a day in capacity charges. The PSO chief clarified that this rate was applicable only in the first year of operations and was reduced to $228,000 a year in the second year of the agreement onwards.

Under the binding agreement, the LNG carried on ships from Qatar must be transferred to the floating storage and re-gasification unit at the Port Qasim within 48 hours of berthing. An invoice must be received by the shipper within five days or the PSO would be bound to pay for the shipment in 10 days. In the case of a delay in payments, the PSO would have to pay two percent interest on the annual base rate. Mohsin also observed that the delivered price of Rs1,600 per MMBTU for re-gasified LNG supplies had greatly increased the cost of doing business in Punjab.

He noted that the Senate panel was previously given an in-camera briefing on the LNG supply agreements and asked why the documents were kept confidential. The officials pointed to the industry-standard non-disclosure clause of the agreement with Qatargas.

The Senate committee chairman also inquired why the PSO had entered into a 15-year agreement with Qatargas after a consultant had recommended only a five-year term.

The officials said the previous government had taken a decision to secure guaranteed fuel supplies for power generation plants to resolve Pakistan’s energy shortfall.

Under the 15-year LNG sales and purchase agreement with Qatargas, the PSO is bound to purchase 3.75 million tonnes of LNG a year, worth about $2 billion, and would incur penalties if it were to reduce off-take. Pakistan has the option of renegotiating the deal in 2026, upon the completion of 10 years of purchases. However, if international market prices have risen by then, Qatar would also have the option of increasing the price of LNG supplies to Pakistan. If the two contracting parties fail to reach an agreement to extend the deal by five years, it would stand cancelled.

The agreement would remain in force until the end of 2031. If the buyer and supply wished to extend it by another five years, an agreement would have to reached by December 2029. In the event of declaration of force majeure, the implementation of the agreement could be halted or rescinded. In the case of a legal dispute, the case would be referred to a three-man arbitration court in London under the rules of United Nations Commission on International Trade.


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