PLL refuses to open bids for import of 200 mmcfd RLNG

ISLAMABAD: In a new development, the 100 percent state owned company Pakistan LNG Limited (PLL) has brazenly refused to open bids for the 10-year long term tender for additional import of 200 mmcfd and even denied to budge before the pressure of Petroleum Division, a senior official told The News.

So much so, top mandarins of Petroleum Division is divided by two groups—one group wants to import additional RLNG 200 mmcfd and other is siding with PLL and Sui Northern that are opposed to import more 200 mmcfd for 10 years. However, Board of Directors of PLL has made the decision not to open the bids arguing at SNGPL has worked out that there is no any long term firm RLNG demand on Take or Pay basis.

It is pertinent to mention that PLL earlier initiated the process of floating tenders seeking 200 mmcfd LNG import bids without taking the input from Sui Northern.

A crucial meeting is to be held in Petroleum Division on Monday next over the refusal of BoD of PLL that has taken the decision not open the bids as there is no firm demand in the system to absorb more 200 RLNG mmcfd.

Spokesman of Petroleum Division Additional secretary Sher Afgan said that Petroleum Division just wants the opening of bids but it does not mean the government will certainly import 200 mmcfd RLNG.

According to the letter written on October 8, 2019 by PLL Chief Financial Officer Nadeem Nazir to DG LGs at Petroleum Division of which the copy is available with The News: “The BoD of PLL duly deliberated in its 58th meeting the issue of the 10-term tender vis-a-vis the absence of any long term firm of RLNG demand on Take or Pay basis, as communicated by SNGPL in its letter dated August 30, 2019 and considering over-due receivable of over approximately Rs40 billion from SNGPL as of date, it was concluded that PLL is not in a position to award the tender or commit to long term LNG supply and without any prospects of award, opening of commercial offers of major international tender (Approximately $5-6 billion) may cause a substantial reputational damage for PLL as well as LNG sector of Pakistan as the prices quoted by the bidders will be made public.

The letter further says: “Therefore, PLL board resolved that PLL will not proceed further with the technical evaluation and opening of the commercial offers of the 10-year long tender. However, in case if the demand for additional RLNG is received from SNGPL, PLL will make its best efforts, to meet such demands through spot tenders, till such time a long term demand of firm take or pay basis is available.”

PLL has taken the decision based on the official input of Sui Northern which says there is no need to import additional 200 mmcfd for next 10 years based on take or pay basis there is no firm demand.

Sui Northern, according to its letter written to DG LGs in Petroleum Division on August 30, 2019 of which copy is available with The News had opposed the government’s process for initiating the long-term tenders seeking import of 200 mmcfd LNG for next 10 years arguing that there is no firm additional demand in the system to absorb the said quantity of the imported product on constant basis.

This was is the response given by SNGPL after 4 days of the letter of PLL dated August 26, 2019 seeking the endorsement of import of 200 mmcfd for 10 years.

PLL with its new management has now realized that it made blunder of floating tenders seeking bids for import of additional 200 mmcfd for 10 years. “PLL should have consulted Sui Northern prior to initiating the process seeking LNG bids for 10 years for provision of 200 mmcfd,” the official opined.

The story of import of more LNG of 200 mmcd from Qatar started when Doha offered in month of June, 2019 another supply of 200 LNG at 11.25 percent of Brent, but the PTI government decided to first float the tenders for import of 200 mmcfd for 10 years to have reference price for product from Qatar. But the decision to float the LNG tender for 10 years factually irritated Doha.

At present, Doha is supplying 500 mmcfd RLNG to Pakistan under a 15-year agreement at 13.37 percent of Brent crude price. Under 15 year agreement, after 10 years, LNG price can be reviewed.

However, under new offer from Qatar for 200 mmcfd more supply to Pakistan, price review was to be allowed after 5 years’ time at a price, which is 20 percent below from the earlier price.

Qatar, which regulates the 75 percent of LNG market shared its dismay with authorities in Pakistan that companies that are to win the tenders will also purchase the product from Doha.

The relevant authorities included in the delegation of Emir of Qatar Sheikh Tamim bin Hamad Al-Thani during the two-day visit of Pakistan started from June 22, 2019 had expressed their resentment when they came to know that Pakistan has floated tenders for 10 years seeking provision of LNG from international companies after getting the lowest offer from Qatar.

However, the PTI government under the decision of federal cabinet continued to stick to its stance and the state-owned PLL invited in July the bids from international suppliers for supply of LNG on ten-year term on a delivered ex-ship basis at Port Qasim as the country seeks consistent, reliable and cheap source of LNG, people familiar with the matter said.

The supplier will be required to provide two consignments of 140,000 cubic meters every month for ten years – a total of 240 consignments. PLL got the bids and now government wants that a consultant of international repute should evaluate the technical bids and then open the financial bids. The Petroleum Division has sought 45 days more for evaluation from consultant.

However, Sui Northern when asked to give opinion about 10 year tendering for import of 200 mmcfd, it scuttled the whole process by opposing the whole process saying there is no firm demand of RLNG in the system.

According to the letter, the Sui Northern built had its case on four agreements and expressed its inability to endorse the LNG tenders for more 200 mmcfd LNG import under 10-year agreement. The said gas company used its first argument of reduced LNG demand saying that existing RLNG terminals and RLNG-II pipeline remained underutilised during most of the month except peak summer months in the wake of reduced LNG appetite.

The SNGPL in its letter responded with the help of graphs showing less demand of the RLNG in most of the months forced the LNG terminals and LNG II pipeline to get underutilised. It further says that RLNG has been imported primarily to cater to power sector. It also mentions in favour of its arguments that average consumption by power sector has been considerably low as against requirements advised by power sector time to time. The gas company also highlights saying that it has only firm LNG requirement of three gas power plants whereas the agreement with IPPs and other power plants are based on ‘as and when basis.’

And whereas RLNG agreement with upstream suppliers are on firm on take or pay basis and that’s why it is not in a position to confirm any additional firm LNG demand or enter into any further LNG supply agreement till the agreement on firm take or pay basis with downstream consumers are not executed on long term basis.

The Sui Northern in its second argument mentioned saying that another stumbling block is of RLNG pricing saying that RLNC price for downstream consumers is at very higher side due to which existing RLNG terminals are under-utilised during the period of lean demand from power sector. However, other sectors are using less RLNG because of its high cost, which is contributing massive hike in cost of production.

The gas company used third argument of additional demand saying that economic zones under CPEC are being established but their indicative demand may take several years to fully materialise. It also indicated that in industrial sector the usage of RLNG has decreased despite the fact that the government has given subsidy on RLNG to zero-rated industry.

The Sui Northern in the letter also used the fourth argument of third party access rules saying that different consortium are approaching it for allocating of pipeline capacity and importantly none of them is planning to explore new consumers and rather focusing on SNGPL consumers. Therefore even new consortium even avail pipeline capacity under TPA rules, it is most likely that existing consumers shall be switched over while the net consumption and demand remain the same.