LNG terminal operators have option to move court of arbitration

ISLAMABAD: The top managements of two LNG terminals in Pakistan have the option to move London Court of International Arbitration (LCIA) if the PTI government forcibly tries to renegotiate deals by taking any coercive action.

This has been clearly written in the agreement documents of both the companies -- Engro Elengy Terminal Pakistan Limited (EETPL) and Pakistan Gas Port Consortium Limited (PGPL) terminals inked with the government. The documents seen by this correspondent suggest that the government cannot renegotiate the agreements as the terminal projects were awarded to the said local companies through bidding process, not through negotiation arrangements, and if the government adopts coercive measures or breaches the contracts, then both the companies can exercise their right to move London Court of Arbitration under dispute resolution clause of the agreements.

The background interviews of the officials involved in the said agreements conclude that Pakistan managed in PML-N government the best price of the regasification of tariff of LNG at terminals. If the PTI government breaches the agreement, they feared, the said companies will fight the legal battle in London Court of International Arbitration and it is known fact that in government has already suffered mammoth losses in cases of Karkey, Reko Diq and IPPs cases taken up in international arbitration forum.

They said the EETPL LNG terminal is getting 48 cents per mmbtu and PGPL 41.77 cents as re-gasifying charges. “If the sitting government tries to harass them, then billions of dollars investment which is in the pipeline for installing three more LNG terminals which will operate under private-to-private model may be in jeopardy. And more importantly, this action will send bad signals to the investors knowing the fact the country is in dire need of direct investment,” they said.

On Thursday last after the cabinet meeting, the PTI government decided to renegotiate the re-gasification charges of LNG terming them at much higher side. Petroleum Minister Ghulam Sarwar in a press briefing said the EETPL is getting abnormal rate of 44 percent rate on equity.

The minister said that they (LNG terminal companies) would have to revisit the contracts if they have to live and do business in Pakistan. The minister said the cabinet had decided to renegotiate contracts with terminal operators as a first step, adding that the contracts carried clauses that allowed “revisit with mutual consent”, otherwise the government would exercise other options.

The EETPL said that it is not under contractual obligation to renegotiate the contract. It also said that return on equity (RoE) is not representative benchmark for analysing net return to shareholders for such tariff based projects, ROE mechanism completely ignores the fact that a significant component of profits from such progress has to be allocated for loan repayment and only the leftover portion goes to shareholders as dividends. Instead, the benchmark metric for such projects should be equity (IRR) -- which takes into account the cash flow returns to shareholders including the timing of theses returns.

The PGPL terminal management says that their return on equity is less than 10 percent, return on investment is at 4.2 percent and internal rate of return is at 4.2 percent. But it has won the project at the lowest ever bid of 41.77 cents per mmbtu. However, the petroleum minister in the last Thursday press briefing said the PGPL is also getting high return on equity. The PGPL said the fact is otherwise.

The PTI government after holding the last Council of Common Interests (CCI) meeting announced that it will go to make the all LNG deals public including the one with Qatar. Smelling the backlash from other buyer countries in the international LNG market against the facilities and margins enshrined in the secrete clauses of the deal with Pakistan, Saad Sherida Al-Kaabi, President and Chief Executive Officer of Qatar Petroleum, met with Prime Minister Imran Khan on September 28 and highlighted the importance of the LNG and warned of dire consequences about the 15 years LNG supply deal. Qatar had threatened to cancel the deal unilaterally.

It is pertinent to mention that prior to signing the 15 years LNG deal with Qatar, both the countries had signed the non-disclosure agreement under which either party cannot disclose the commercial terms of the agreement. And in case Qatar, which controls 70 percent LNG market of the world, gets annoyed, Pakistan will plunge into darkness and may not be able to make LNG deal with any country knowing the fact that it has already disclosed the deal done with Qatar.

According to the top officials of the country, the PTI government has now decided not to make public the secret clauses of the LNG deal with Qatar accepting the version of the Qatari authorities that in secret clauses, Pakistan has been given the best facilities and margins.

After failure to make LNG deal with Qatar public, the PTI government has now decided to take on LNG terminals companies. This has not only irritated the LNG terminal company which won the projects through bidding, but also harassed them, said the top officials of Petroleum Division.

Shahid Khaqan Abbasi, who remained petroleum minister for four years and prime minister for one year, said the LNG terminal contracts were given through bids and the said contracts have nothing to do with the return on equity. This is the companies’ prerogative to come up with 100 percent equity or arrange the loan, but the government had decided awarding of the contracts on the basis of the lowest bidding. He said that first LNG terminal contract was awarded at 66 cents per mmbtu on re-gasifying 400 mmcfd of which the tariff was brought down to 48 cents per mmbtu on re-gasifying 600 mmcfd gas. About second LNG terminal, the PGPCL was awarded the contract on the same bidding process at lowest ever bid of 41.77 cents per mmbtu.

Abbasi said that process of bidding and awarding the contracts are crystal clear and transparent. He said that best LNG terminal re-gasifying of LNG was managed by his government if compared with the terminals installed by India and Bangladesh. He said the amount of 48 cents per mmbtu, EETPL is supposed to have as re-gasifing and tolling fee, but out of 48 cents, Port Qasim Authority gets 5 cents as its charges which means that the LNG terminal company in total gets 43 cents per mmbtu and in case of the PGPL terminal, the said company is supposed to get 41.77 cents put PQA deducts its 5 cents and PGPLC factually gets 36.77 cents.

The ex-premier said that Qatar has extended best deal to Pakistan for 15 years and he is open to any kind of investigation because bringing the LNG in the country is his credit and if there is any wrongdoing he himself is responsible. Abbasi desired the NAB should investigate him, not the officials involved in materialising the LNG import project.