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April 6, 2020

PD clarifies report on taking over second LNG terminal


April 6, 2020

ISLAMABAD: The Petroleum Division (Ministry of Energy) has vehemently denied a news item appeared in a certain section of media regarding taking over second LNG terminal and desires to state the factual position. “Statements appearing on 3rd April, 2020 are false and apparently perpetuated by vested interest party(s) to prejudice opinions of the public at large and of the key stakeholders in this matter which is sub-judice in the London Court of International Arbitration (LCIA),” said the PD in a statement.“It is denied, as portrayed in the titles, captions and body of the articles that the Government of Pakistan is an aggressor and is grabbing private parties’ assets of the LNG Terminal-2, thereby, the nuance of expropriation is false, misleading and baseless. The government encourages investment and provides it fair protection albeit the reported disputes are of commercial nature that are being dealt prudently by the concerned commercial entities in accordance with the agreement and the law,” said the PD..

It added that the report that Petroleum Division has submitted a plan to take-over Terminal-2 assets is denied. “Only a status update was presented to the CCoE for information on the facts of the dispute. It is clarified that PLTL has the contractual right to purchase PGPCL’s share of terminal assets, on expiry or earlier termination, in which case certain commercial benefit accrues to the public, or appoint another substitute terminal operator in lieu of PGPCL both under certain breach of conditions, which prevailed. The options are exercisable by paying full cost of assets or such amount is paid by a substitute operator appointed by PLTL, only upon outcome of judicial and arbitral awards,” it said.

The PD said the article implies that PGPCL is intimidating with a potential claim of 100s of million dollars if PLTL takes over the terminal. “It is clarified that the dispute was initiated by PGPCL and the government entity PLTL is acting on merits in defence, as per the contract and the law. It is also realized that impact of the potential damages claim is subject to arbitral award, and is also equally likely on the dispute claimant,” it said.

The PD said the agreement between PGPCL and PLTL for LNG services at Terminal-2 was terminated by PLTL after being extremely tolerant of the material financial breach of the agreement. “This Division would refrain from commenting on the reported cure of breach by PGPCL nearly two and a half months post-termination of OSA, as this matter is sub-judice,” it said.

It said there are three key project parties other than PGPCL actually involved with the Terminal-2 operations and amongst them having major investments in the project. “PLTL had signed ancillary direct options agreements with the project parties to continue LNG operations unaffected by the dispute with no threat of gas supply disruption. The action is also aimed to protect the major portion of investment made by the other project parties” the PD said.

It said the PLTL participated in good faith in a protracted dispute resolution process which remained inconclusive and inequitable to public interest due to inflexibility shown by PGPCL to settle the dispute. PGPCL ended the dispute resolution process prior to its expiry time and took the matter to Islamabad High Court (IHC) to restrain PLTL to take post termination steps as stated in the OSA, as well as to the London Court of International Arbitration (LCIA).

“It is clarified that the IHC has not issued an injunctive order on termination of the OSA rather only stayed certain post-termination actions while allowing arbitration at LCIA, and court proceedings continue,” it said, adding, “It is denied that PLTL has unduly delayed the filing of response to the LCIA. The company is on top of the affairs and will act accordingly in view of the situation and in the best public interest.”

The PD said the statement that a Ministry of Petroleum official stated that PLTL terminated the contract, as PGPCL did not pay the LD amount of $30 million is baseless and denied, since, persistent breach of a key financial covenant of the OSA led to the termination of the agreement. It said there is a separate outstanding dispute of LDs between the two parties arising out of the delayed commercial start date of terminal operations, which was also afforded a fair opportunity of extended dispute resolution process under the OSA, and after being inclusive, PGPCL chose to initiate arbitration at the LCIA, which too would be defended by the Company on merits and in accordance with the law.

Khalid Mustafa adds: The clarification for Petroleum Division is self-contradictory when it says that the government is not aggressor in PGPL-PLTL dispute as it has just updated CCOE (Cabinet Committee on Energy) on the issue. The summary with the headline ‘Dispute resolution and termination of agreement between Pakistan LNG Terminal Limited (PLTL) and Pakistan Port Gas Consortium Limited (PGPL)’ containing four proposals among which one proposal desires PLTL to take over the control of LNG terminal owned by PGPCL is clearly signed by Secretary Petroleum and in the summary it is also written that the contents of the summary are also seen by the energy minister.

When the summary is signed by secretary and seen by energy minister wishing to take over the control of LNG assets owned by private sector, it does give the impression of the government being an aggressor. Though in the story filed by The News, it never mentioned that Petroleum Division has emerged as aggressor, however, it is crystal clear when Secretary Petroleum signs the summary based on inputs of its 100 percent government-owned company, it means that the government has become the part of the dispute as in the summary, it is not mentioned that Petroleum Division is still needed to apply its mind. More importantly, The News filed the story based on official documents -- summary of Petroleum Division on Dispute Resolution and termination of agreement between Pakistan LNG Terminal Limited (PLTL) and Pakistan Port Gas Consortium Limited (PGPL) and PGPCL’ note sent to members of Cabinet Committee on Energy. And more importantly, The News also quoted the one of top man of Petroleum Division saying that the PD has updated the CCEO on the said dispute. Now coming to the facts about the dispute which clearly shows that petroleum division want to gag private sector company in the dispute and nothing else.

According to the documented facts, Pakistan LNG Terminal Limited (PLTL) on October 14, 2019 terminated the Operation and Services Agreement (OSA) with LNG terminal owned by PGPCL because of failure in depositing the fresh credit rating guarantee equal to worth of $10 million in cash or asset value of $15 million. PLTL had taken the plea that JJVL’s guarantee has been downgraded on account of litigation so PGPCL is required deposit the fresh guarantee equal to $10 million in cash or equal to asset of worth $15 million despite seeking the guarantee against the downgrading.

Since the contract allows the parties to the dispute after termination of OSA to resolve the dispute amicably and during that time the status quo remained the same. PGPCL submitted well within 90 days and on December 6, 2019 the guarantee with the mortgage of assets valuing $15 million with SECP to avert the decision of 100 percent state owned Pakistan LNG Terminal Limited (PLTL) terminating Operation and Services Agreement (OSA).

But the PLTL did not restore the agreement; rather it asked PGPCL to also pay liquidity damages (LDs) of $30 million. The dispute of LDs was a separate issue which PLTL and under new scenario it has clubbed LDs issue with the issue of restoration OSA. In the clarification, Petroleum Division also acknowledged that LDs issue is a separate issue. Now the question arises when alleged claim of payment of $30 million is a separate issue then why PLTL had not restored the agreement with the PGPCL despite the fact it submitted with SECP the charge of $15 million guarantee.

The clarification also mentions that IHC has given its verdict saying the PLTL that the status quo will be maintained which means that PGPCL will continue to operate LNG terminal-2. 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 IHC. The PGPCL has already moved the London Court of International Arbitration against the termination of OSA by PLTL seeking the status quo in terms of operating the terminal. Now in the presence of the IHC verdict and the case in LCIC, how can Petroleum Division sign the summary seeking for control of assets of LNG terminal? And the constitution of four members committee by CCEO comprising Asad Umar, Ali Zaidi, Nadeem Babar and Omar Ayub Khan to look into the matter and submit its report within a week is also questionable, as Asad Umar, Federal Minister for Planning, Development and Special Initiatives, has in the past been part of Engro company which is rival business party of PGPCL in LNG terminal business. And more importantly the four-member committee can do nothing as the matter is in now in London Court of Arbitration.