LNG matters

We have seen in the past that arbitrary and inconsiderate decisions by our decision-makers have caused not only huge losses to the public exchequer but have also tarnished our image internationally. Liquefied Natural Gas (LNG) is also not a new matter of controversy in the country. First it was former prime minister Shahid Khaqan Abbasi who became a target of NAB for allegedly misusing his authority and appointing certain individuals without due diligence. Though Abbasi has been released on bail, NAB has already done tremendous harm to his name and reputation. And now it appears to be the turn of Pakistan Gas Port Consortium Limited (PGPCL) that has been facing an onslaught from Pakistan LNG Terminal Limited (PLTL). PGPCL is a wholly owned subsidiary of Pakistan Gas Port Limited (PGPL) and operates the LNG import terminal at Port Qasim. This project represents an investment of about half a billion dollars from PGPCL. The project was awarded through an international competitive bidding process to provide LNG storage and regasification services to state-owned PLTL for 15 years. The tariff offered were among the most competitive anywhere in the world and the terminal’s surplus regasification capacity was to be made available to the private sector.

Pakistan’s entry into the LNG was already late as the first LNG policy was launched in 2006 but Pakistan could only commence LNG imports in 2015. This entire project is of crucial importance as Pakistan’s energy mix has been heavily reliant on non-LNG sources. But then came a sudden shock in October 2019 when PLTL terminated the operation and service agreement (OSA) of the LNG regasification terminal with PGPCL. The allegation was that it had failed to maintain the OSA requirements. Apparently it was due to non-submission of $15 million worth of performance guarantees as per the international credit rating. This dispute had been going on for nearly one year before the cancellation of the OSA. After cancelling the agreement, PLTL started making arrangements to take over the terminal from PGPCL. Earlier, a penalty worth $30 million had also been imposed on PGPCL due to late start of operations at the terminal. PLTL claimed that it had been seeking ‘Adequate Assurance of Performance’ from the PGPCL which it was allegedly unable to furnish. The matter went to the court and the Islamabad High Court issued an order to maintain the status quo.

Ideally, the Cabinet Committee on Energy headed by Dr Hafeez Sheikh should have taken up this matter much earlier. Finally in the last week of March, the federal government replaced Dr Sheikh and appointed Asad Umar as the new chairman of the committee. Now, in a meeting of the Cabinet Committee on Energy on April 4, PGPCL presented its case to claim charges of hundreds of millions of US dollars through the London Court of International Arbitration (LCIA). As PGPCL has already moved the London Court against the termination of the agreement, PLTL which is a 100 percent government owned company cannot take over the terminal. According to reports, PLTL has not filed any response to the London Court. Asad Umar has formed a four-member committee to review the matter within a week and recommend a solution. This should have been done much earlier. Let it be clear that we cannot afford to lose another case in the international courts which have already imposed heavy fines on us worth billions of dollars. Let’s also hope that the new committee reaches an amicable solution to this dispute and lets the terminal run.