Closure of Engro LNG terminal: PM calls special meeting today on dry docking issue

ISLAMABAD: Prime Minister Imran Khan has summoned the special meeting today (Wednesday) on the closure of Engro LNG terminal for dry docking Floating Storage Regasification Unit (FSRU), named as Exquisite, either from June 29 to July 5, 2021 or somewhere in August, in light of legal opinion from law division. “This was decided in the federal cabinet meeting held here on Tuesday,” a senior official who attended the meeting told The News.

The Cabinet Committee on Energy (CCOE) was supposed to decide the issue of dry docking on Tuesday but because of a delay in legal opinion from the Law Division the meeting could not take place. The sources said that the Law Division headed by Farogh Naseem held a meeting on Tuesday night with legal teams of EETPL, SSGC, SNGPL to form his legal opinion. The LNG ship owners and international marine lawyers on behalf of EETPL were also part of the meeting and sensitized the adverse impact if the international law about dry docking is flouted. Top mandarins of the Energy and Marine ministry also attended the meeting. The sources claimed that the Pakistan government is left with no option but to go for the dry docking from June 29-July 05. A team of Law Division, without its minister, had earlier held meetings with stakeholders’ legal teams but the Law Minister preferred to have his own meeting with stakeholders’ legal teams to make up his mind.

Farogh Naseem will air his views in the meeting summoned by Prime Minister. The law opinion was sought by the CCOE that met last Friday (June 18, 2021) asking what legal implications Pakistan will have if the dry docking is allowed in August, not from June 29 to July 05. According to the sources, Federal Minister for Planning and Special Initiatives Asad Umar in CCOE meeting had sought opinion from law division if the government does not allow the dry docking from June 29-July 05, the government cannot face the wrath of people because of disruption of RLNG supply chain in the country which will trigger huge unrest among the masses. “Other federal ministers in the meeting also expressed the fear that the closure of Engro LNG terminal will have serious political implications as dry docking as being sought by the Petroleum Division will lead to gas load shedding as many plants are run on RLNG.” Asad Umar had, sources said, expressed the desire that the dry docking should be done in August. Finance Minister Shaukat Tarin was not happy and he asked for inquiry as to why dry docking which was due in 2019 has not so far been done and why it is being done now. “The Qadirpur gas field is already on annual maintenance and any closure of the LNG terminal will aggravate the gas availability situation.”

However, the Petroleum Division official said that existing FSRU will have no insurance cover after June 30, 2021 which is why it cannot be used for regasification at LNG terminal and even it will not be allowed to sail through sea saying its dry docking is now imperative. The Engro official said that the replacement ship Sequoia, with a regasification capacity of 780 mmcfd, arranged by EETL at its own cost and risk, is expected to reach Pakistan on June 26. The company has assured all stakeholders that Sequoia is a more capable and efficient vessel, and will meet all performance obligations under the agreement. He said that the dry-docking activity is expected to remain completely shut for only two days, with the supplies normalizing over the next four to five days.

“The FSRU Sequoia after dry docking of FSRU Exquisite will leave Pakistan and FSRU Exquisite will again start functioning at Engro LNG terminal and Engro has given this undertaking to all stakeholders including the government of Pakistan,” said the Engro official. “And in case Pakistan wants to keep FSRU Sequoia for more regasification capacity under new arrangements, then Engro will retain it for 10 years’ time but again this is up to the government.”

However, under latest scenario, the issue of dry docking was raised in the cabinet meeting here on Tuesday in which it was decided that Prime Minister Imran Khan will chair the special meeting on the subject today (Wednesday).

It may not be out of place to mention here that the US Embassy officials have already met with the prime minister on the issue 6-7 days ago and they also held a meeting with Energy Minister Hammad Azhar on Tuesday and discussed the dry docking among other energy related issues. Now after meeting on the issue with the Premier in the chair, CCOE may meet on Thursday to take final decision keeping in view the directives of the PM likely to be issued today (Wednesday).

However, independent experts are now eyeing for what opinion the Law Division will submit about Engro LNG terminal. They say that JJVL LPG extraction plant is closed down since long despite the fact that ECC and federal cabinet allowed to make the plant operational but Law Division for the last 8-9 months didn’t come up with any opinion about the fate of JJVL plant saying NAB is investigation some issues pertaining to JJVL.

The experts say that AF Ferguson & Company (AFFCO), appointed as supervisor by the Supreme Court in its final determination report, has established the commercial and financial viability for SSGC to supply gas to the LPG plant. And more importantly, the consultant’s report has found that setting up a new LPG/ LNG extraction plant by SSGC, on current gas available, is not viable, but still the plant is not being made operational.

Engro official said that the planned dry docking of LNG Floating Storage Regasification Unit (FSRU) Exquisite, currently in use by Engro Elengy Terminal (EETL), by June 30 is in accordance with the supply agreement with SSGC and unavoidable under international laws. When asked as per agreement why not EETPL has informed the government one year before for dry docking, he said that EETL, is in discussion about dry docking with SSGC and all relevant government stakeholders since October 2019, notified them about updates on March 30, 2021 and made it clear that FSRU Exquisite must be sent for dry docking latest by June 30, 2021. The Class Society had already extended the certifications twice due to COVID-induced disruptions that led to port shutdowns and unavailability of experts. Excelerate, the US firm that owns FSRU Exquisite, has also confirmed that the vessel cannot be operated without Class Society certifications beyond June.

Since the March notification to stakeholders, namely SSGC, SNGPL and PSO, EETL held multiple meetings to seek flexibility to update the annual delivery plan to accommodate the dry dock activity. No progress was made as SSGC feared exposure to Liquidity Damages (LD) from SNGPL for any disruption in gas supplies. Therefore, SSGC continued to resist change in the annual plan to allow for the mandatory dry dock activity to maintain class certificates as required under the LSA. As the deadlock persisted, the matter was put before the Ministry of Energy and, subsequently, it was put forward before the Cabinet Committee on Energy (CCoE).

An Engro official said “under the agreement with SSGC, the FSRU is required to dry dock twice over the 15-year period. This was trivialised causing delay in decision making. We are engaging with all stakeholders to ensure the dry-docking and switch over with more capable FSRU Sequoia is done smoothly. The dry dock shutdown can be for more than 3 months, however, the replacement ship will enable regasification to resume within 3 to 4 days,” the Engro official added.