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February 14, 2021

PLL granted partial exemption from PPRA rules for LNG procurement

February 14, 2021

ISLAMABAD: The government has extended a partial exemption to the Pakistan LNG Limited (PLL) from applicability of PPRA rules on LNG procurement through spot cargoes.

The federal cabinet has approved the exemption based on the recommendations of the PPRA (Public Procurement Regulatory Authority) board and informed the Petroleum Division. The decision, according to the official documents, would help secure economical and reliable spot LNG cargoes.

The government has granted the partial exemption to Pakistan LNG Limited (PLL) from applicability of Rule-35 of PP Rule by relaxing the period between announcement of evaluation report of bids and award of the contract.

The Petroleum Division had asked for reducing the mandatory 10-15 day period to two. It had also sought exemption for reduction in 30-day response time which always exposes PLL to situations where following PPRA timelines, insufficient time is left for the vessel’s voyage, besides causing less competitive bids resulting in costly LNG procurement.

Under Rule 35 of PPRA, the bidders are required to keep their bids valid for 10—15 days, which is quite a long period as compared with industry norm of 1-2 days of bid validity period.

This was agitated by the Petroleum Division with the PPRA Board. While seeking exemption, it had argued that when spot LNG market prices are on an upward trajectory, there is a risk of supplier withdrawing the bid as its monetary exposure is only to the extent of the bid bond whereas the incentive, by selling cargo on higher price, is huge.

The Petroleum Division also argued saying for instance, from the bid opening date (28 December 2020) and the award date (7 January 2021) for February 2021 spot tender, international spot LNG prices rose more than 35pc.

To put things into perspective, this increase in prices translates into an increment of around $11 million in the value of a cargo.

In this instance, retendering is not a viable option as the prices have already increased significantly and there may not be enough time to undergo international competitive bidding process per PPRA Rules.

The PD argued that due to Rule 35 the bidders either offer higher prices to PLL to mitigate their risk of market fluctuations or decide not to participate in the PLL tender at all. The PD also argued in its summary to the PPRA board that Pakistan’s spot tenders have the longest bid validity period as compared with all other LNG procuring agencies world-wide. In a volatile market, the risk associated with keeping the bids valid for 10-15 days is a disincentive for the suppliers to participate in PLL’s spot tenders.

The document mentioned that a meeting of the PPRA Board was convened on February 1, 2021 at the Finance Division, under the chairmanship of the Finance Secretary who is Chairman PPRA Board. The PPRA Board recommended partial exemption to Pakistan LNG Limited from application of Rule-35 which was approved by the federal cabinet through circulation.