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April 4, 2020

Meeting of Cabinet Committee on Energy

Peshawar

April 4, 2020

ISLAMABAD: The Pakistan Gas Port Consortium Limited (PGPCL) has told the members of the Cabinet Committee on Energy (CCOE), which met here on Thursday, in plain words that if its LNG terminal is taken over by Pakistan LNG Terminal Limited (PLTL), which is 100 percent government-owned company, then it will be left with no option but to claim charges in hundreds of millions of US dollars through the London Court of International Arbitration.

More importantly, the PGPCL also sensitized the CCOE members arguing that the government cannot allow the PLTL to take over the assets of LNG terminal in the presence of the Islamabad High Court order which clearly says status quo be maintained. And any action by the PLTL, or its owners i.e. the government, towards changing the existing status quo pertaining to the terminal would be in violation of the injunctive order passed by the Islamabad High Court.

The PGPCL has already moved the London Court of International Arbitration against the termination of Operation Services Agreement (OSA) by PLTL seeking the status quo in terms of operating the terminal. Now PLTL wants to grab the assets of the LNG terminal, which is providing the lowest re-gasification rate in the region which stands at 41.7 cents per MMBTU. However, the PLTL has not filed any response to PGPCL’s claim before the LCIA in either of the Requests for Arbitration, therefore, PLTL’s alleged and mistaken claim of imposing Liquidity Damages (LDs) is not before the arbitral tribunal. The top management of PGPCL LNG Terminal, which is the second terminal of Pakistan, has shared its mind through a note with members of the Cabinet Committee on Energy which met here on Thursday with Federal Minister for Planning, Development and Special Initiatives Asad Umar in the chair. Spokesman of the Petroleum Division, however, said that the division has just updated the CCOE on Thursday about the status of the dispute between PLTL and PGPCL on the second LNG Terminal.

According to the press release of the CCOE meeting, a four-member committee comprising Asad Umar, Federal Minister for Planning and Development, Omar Ayub Khan, Federal Minister of Energy, Ali Zaidi, Federal Minister for Maritime, and Nadeem Babar, Special Assistant to PM on Petroleum, has been constituted.

The committee will carve out its opinion within a week's time and submit its report to CCOE forum. However, one of the members of the committee told The News that, CCOE cannot allow PLTL to take over the second LNG terminal assets as the case is in London Court of International Arbitration. And more importantly the Islamabad High Court has already given its verdict that the status quo must be maintained.

However, the top management of PGPCL LNG terminal through its note urged the CCOE to inquire into the full facts and circumstances of the matter before making any decision that could potentially violate both orders of the superior courts of Pakistan as well as expose Pakistan to another multi-million dollar award along the lines of Reko Diq and Karkey.

In the meeting, the Petroleum Division has pitched up a summary seeking the permission to take over the assets of second LNG terminal which is owned by PGPCL. In the summary signed by secretary petroleum, it was pitched that in order to secure the LNG supply chain, the Petroleum Division claims that Operation and Services Agreement (OSA) provides PLTL the right upon expiry or earlier termination of OSA, for purchase, lease the services infrastructure. The Petroleum Division's top official in CCOE meeting pitched the argument saying that due to PGPL’s failure as claimed by PLTL in meeting their contractual deadlines to commence terminal operations on commercial start day of July 1, 2017, PLTL imposed liquidity damages to the tune of $30 million on September 25, 2017. Since it has not paid the liquidity damages, so it first terminated the Operation and Services Agreement with PGPCL and now it has the right to take over the PGPCL terminal.

However, with regards to both disputes mentioned in the summary, PGPCL pleaded its case by sending a note to members of CCOE telling that it has offered concessions beyond its contractual obligations, however, unfortunately, the parties could not settle the disputes. The PGPCL has, therefore, referred the disputes to be finally resolved through arbitration at the London Court of International Arbitration in London. Proceedings have been initiated and are currently pending there for PLTL’s response – which is being unduly delayed. The PGPCL, upon guidance from legal counsel, believes it has a high-probability of success in both claims.

PGPCL believes that PLTL was unlawful in terminating the OSA since the Adequate Assurance of Performance had been agreed upon and, subsequently, a charge for the appropriate amount was registered in favour of PLTL, thereby further securing PLTL’s position. Under the current status quo, if PGPC wins arbitration, it merely wins the right to maintain the status quo and to continue to operate the terminal (no damages are awarded nor are they sought). However, if the government takes over the terminal, PGPC would be constrained to claim the damages, which would be in hundreds of millions of US dollars. These damages would include, but are not limited to (a) Damages suffered from the loss of profit in operating the terminal for a full 15 years; (b) Damages due to the financing defaults resulting from the terminal takeover; (c) Damages caused to the PGPCL shareholders and associated companies due to cross default provisions in their borrowing agreements; and (d) Damages resulting from the loss of business opportunities (such as loss of the terminal’s excess capacity, or the lost opportunity to bid for the next private LNG terminal).

However, the press release issued after CCOE meeting says that the CCOE set up a sub-committee to deliberate the matter and report back to the CCOE within a week. The Petroleum Division also apprised the CCOE on the updated status of the dispute between Pakistan LNG Terminal Ltd. (PLTL) and Pakistan Gas Port Consortium Ltd. (PGPCL). The Power Division briefed the committee on various measures which were under consideration to reduce electricity prices. The CCOE was also apprised about the tax refund issues of the power sector and the need to streamline the process of payment of GST by the DISCOs. The CCOE decided to recommend to the cabinet that the pending tax refunds may be paid forthwith.