ECC may approve accord to procure LNG from Azerbaijan’s firm

ISLAMABAD: The Economic Coordination Committee (ECC) that meets here today (Monday) with Finance Minister Ishaq Dar in the chair may approve much-awaited agreement to procure distressed LNG from SOCAR---Azerbaijan’s firm. The Petroleum Division has re-pitched a summary to the ECC for approval.Earlier, the ECC had linked the approval of SOCAR’s agreement for distressed LNG cargo with price discovery mechanism, which was not mentioned in the draft summary.Recommendation for linking the approval with the price discovery mechanism was given by former PM Shahid Khaqan Abbasi who is currently acting as chairman of the task force on energy.

More importantly, Abbasi said that Petroleum Division is also needed to establish the demand for LNG from any sector for procuring distressed LNG cargoes.He also asked the ECC members not to approve the agreement framework to be signed with SOCAR unless the price discovery mechanism for any distressed LNG cargo was not carved out. He recommended issuing a tender inviting bids for the LNG cargo and harnessing the bid price prior to taking the decision to procure the distressed LNG that SOCAR would offer.The ECC chair, after listening to Abbasi, had asked authorities in the Petroleum Division headed by the State Minister of Petroleum to come up with a price discovery mechanism.Now that the Petroleum Division has re-sent the altered summary to the ECC, the issue of the price discovery mechanism has apparently been resolved, as per Petroleum division officials.

Under the price discovery mechanism, the Pakistan LNG Limited (PLL) would evaluate the offered price in comparison with the prevailing international price as well as consult downstream customers (power sector) to ensure affordability.Under the proposed framework agreement for distressed LNG cargo, the initial one-year term would be extendable to another year. One LNG cargo per month would be offered by SOCAR 45 days prior to the start of the relevant delivery window time.However, the PLL needed to decide in 24 hours whether it would purchase the distressed cargo or not. Each offer for the cargo will have a set validity period during which the PLL may accept the offer.The payment should be made within days following the PLL’s receipt of the invoice, while the PPL has to issue the credit letter from a local bank(s). The LC confirmation charges should be on the sellers’ account.The port charges for SOCAR were capped at $500,000, whereas all Port Qasim Authority costs, including taxes, would be defined as port charges.The PLL has not received any bids against recent tenders and has been facing LC issues and cancellation of the term cargoes. Under the given circumstances, the PLL may execute the framework agreement with SOCAR as there are no financial obligations or take or pay commitments. However, the LNG may only be procured under the said agreement if an attractive price is offered.

Pakistan State Oil (PSO) and PLL are currently importing LNG under long-term LNG supply contracts to minimise the gap in demand and supply of gas under three pacts.The first long-term agreement was signed by PSO with Qatar Gas in 2015 at 13.37 percent of price (slope of Brent) for five cargoes monthly for 15 years.