Deal on import of first LNG cargo unfolds

ISLAMABAD: The first ever vessel containing 147,800 cubic metres Liquefied Natural Gas (LNG) that got berthed at Port Qasim on March 26 is factually the sole result of deal agreed between the Pakistan State Oil (seller), and Pakarab Fertilizers Limited (buyer), discloses the four-page confidential Terms Sheet signed between the two parties containing principal terms of supply of PSO to Pakarab Fertilizers Limited.
The copy of the Terms Sheet duly signed by Shahid Islam, managing director of PSO and Iftikhar Baig, director Business Development of Pakarab Fertilizers Limited (PFL) that is available with The News divulges that PSO (seller) on the request of PFL (buyer) has sourced a cargo of LNG from Qatargas producing venture on an FOB (freight on board) basis under an FOB Master Sales Purchase Agreement.
Under the Terms Sheet, Floating Storage and Re-gasification Unit, which is the part of Engro Elengy Terminal Private Limited (EETPL) facilities, will partially use the LNG cargo for commissioning of its facilities.
PSO has procured the LNG when the LNG price agreement has not yet been finalised with Qatar. It means it has arranged the LNG without any tender which is apparently against the PPRA Rules raising eyebrows of many in the country.
However, Shahid Khaqan Abbasi said that this was purely a commercial transaction and PSO could do it. But, he did not explain, when asked, as to who authorised PSO to execute the commercial transaction particularly when the state-owned company had no board of directors. All the board management has already been suspended by prime minister of Pakistan on the petrol crisis that recently gripped the entire country.
The independent experts are of the opinion that the secret deal is questionable as PSO has never, in its history, executed any commercial transaction.However, state-owned oil marketing company will, under Terms Sheet, charge the price of LNG from Pakarab Fertilizers at $8.74 per unit.
The other costs {being such costs, other than the seller charge, actually incurred in import of LNG including but not limited to all bank charges and fees, insurance charges, surveyors fees, wharfage, port charges, stamp duty, quality and testing measurement charges actually incurred on the import of LNG} will be paid by the buyer at actuals, but are estimated at $0.46 per unit. The taxes, duties levied on the import of LNG, including but not limited to the federal excise duty and Sindh excise tax as apportioned to each LNG unit, will also be paid by the buyer at actuals and are estimated at $0.12 per unit.
In addition, Agreed Retainage at a fixed rate of $0.14 per unit will also be paid by buyer to the seller. This means the price per unit will be the sum of the seller charge, other charges, taxes and duties and Agreed Retainage.
The buyer will also have to pay the terminal charges amounting to $1.46 per unit. Apart from it, under the sales purchase agreement in the light of Terms Sheet, PSO will sell the LNG cargo of 3,432,300 units to PFL after the deduction of the Heel. One unit means 1 MMBTU.
Heel means the quantity required to be retained in the FRSU. PSO being a seller will also deduct Agreed Retainage being agreed quantity of 1.5 percent of the landed cargo from the contract quantity.After the deduction, the resulting amount will be the contract quantity for which the buyer (PFL) will pay the price.
Under the deal, PFL is bound to pay 25 percent of the cargo price to the seller by March 31, 2015 that means it has paid the required amount to the PSO on Monday. PFL will pay 25 percent of the gas company charges to Sui Southern within 10 days of the first delivery of any units at the delivery point.
Moreover, standby letter of credits for the balance of the amounts due from the buyer will be provided as security for other amounts due on account of price and gas companies charges. Invoices will be raised on a weekly basis by the seller for the balance contract quality. Invoices for the gas company charges will be raised periodically by Sui Southern and on top of that, appropriate adjustments will be made for units not delivered.
The risk of loss of units mentioned in the contract quantity will be borne by gas companies subject to allowable line losses. Losses will also be covered by the PSO guarantee and in case of non-delivery of the contract quantity to the delivery point, PSO will have the rights to such units.
There will be no warranty regarding the specifications, merchantability or fitness for purpose of the LNG sold by PSO or for any natural gas delivered by Sui Northern. However, the number of units delivered at the delivery point will be the same as those transferred at the in-tank delivery point after allowing for allowable line losses.
PSO, as seller, will also guarantee the performance of the gas companies to the extent that it will undertake to refund any money advanced for which units have not been delivered by the expiry date of Multiparty Agreement. The Terms Sheet and any Multiparty Agreement resulting from it will be governed by Pakistan laws. Any dispute arising out of the Terms Sheet will be settled by arbitration at Karachi as per the Arbitration Act, 1940.