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October 24, 2019

DG LGs questions PLTL action to end contract with PGPL terminal

National

October 24, 2019

ISLAMABAD: In an interesting development, Director General of Liquefied Gases (DG LGs), Jabbar Memon, has almost charge-sheeted Pakistan LNG Terminal Limited (PLTL) in its 548-word situation analysis raising serious question marks over termination of agreement with the PGP Consortium Limited, saying that PLTL board did not seek approval and guidance from the petroleum ministry prior to October 14 decision to terminate the agreement with PGPCL terminal.

It is quite surprising as the government is not satisfied with the decision of the state owned PLTL to terminate the (Operation Services Agreement) with LNG terminal as this may give a bad signal to the foreign investors who may view this as nationalization of a private sector company. The foreign investor may not be able to understand government’s viewpoint and the unilateral act of PLTL may tantamount to expropriation. Memon also said the impact of the first private transaction of third party access such as Trafigua seeking excess terminal capacity from PGPCL and re-entry of Exxon Mobil in Pakistan through LNG might be affected. The PLTL should have examined the magnitude of breach and communicated to DG LGs before proceeding with the severe action of termination of the agreement.

The official document namely ‘Situation Analysis’ written on October 16, 2018 by DG LGs, for Petroleum Division after it decided to issue termination notice, of which copy is exclusively available with The News, saying that PLL and PLTL boards should have sought prior approval and guidance of the ministry before embarking upon the severe action of termination of OSA (Operation Services Agreement). The document also considers the capacity of PLTL to manage the terminal operations, questionable.

The DG Liquefied Gases in the situation analysis also argues that it is essential to understand why PGPCL reached the situation to default. The first step always is the root cause analysis. What is the guarantee that the new LNG Terminal operator will not face same situation? If the reasons were beyond them then the precedence to terminate Operation Services Agreement will be very dangerous. He also berated the decision saying PLTL actions should be in accordance with OSA and the laws applicable in this context and suggested that PLTL may negotiate and avoid terminating of OSA as it may have negative fallout. He apprehended saying that PLTL action may give a bad signal to the foreign investors as it can be seen as nationalization of a private sector company. The foreign investor may not be able to understand government’s viewpoint as unilateral act of PLTL may tantamount to expropriation.

The DG also said the impact of first private transaction of the third party access such as Trafigua has sought excess terminal capacity from PGPCL and re-entry of Exxon Mobil in Pakistan through LNG might be affected. PLTL should have examined the magnitude of breach and communicated to DG LGs before proceeding with termination. Memon also spoke his mind suggesting that PLTL should have considered the repercussions of termination, especially retaliatory scenario for example if PGPCL gets an injunction or stay and if it refuses the re-gasification of the cargoes the government would be exposed to huge take or pay of two term cargoes of 100 mmcfd each.

DG LGs also mentions in his situation analysis revealing that it is pertinent to mention that PLTL wrote a letter to the Ministry in March 2016 seeking clearance of M/s JJVL from the NAB authorities before the approval of Technical Bid Evaluation Report. The Ministry of Petroleum took up the matter with NAB which informed DG LGs vide letter no. 7-2(13)/k/IW-III/NABHQ/2016 that Mr. Iqbal Z. Ahmed of M/s JJVL has been cited as an accused in the Reference No. 19/2016 filed by NAB in Accountability Court.

The PGPCL is a subsidiary company of JJVL. However, later it was clarified from the Law Division that there is no injunction or legal bar on processing of bids and the PLTL may proceed in accordance with merits of the case.’ He also said: ‘’It is also important to note that NAB investigation officer may not necessarily have the qualification and experience in handling such specialized areas of work meaning that criminalizing every commercial deal and investment will be detrimental for LNG Business in Pakistan.

He also asked that the government of Pakistan needs to appreciate it is PGPCL which brought the project together at better rates compared to Terminal 1, a new FSRU and a Green Field Project. The PGPCL rates were verified by international consultant (M/s Galway International of Singapore) to be amongst the most competitive in the world. The DG LGs also mentioned that PGP Consortium Limited (PGPCL) has setup the LNG terminal at the cost of US$ 176.5 million (excluding the cost of FSRU but incl. FOTCO leased infrastructure). He said that PGPCL had won the bid for the project in accordance with PPRA and Operation and Services Agreement was signed between PGPCL and PLTL on July 01st, 2016.

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