ISLAMABAD: Pakistan might float a fresh tender for a multi-billion-dollar Liquefied Natural Gas (LNG) import project as the petroleum ministry has tabled two proposals for the Economic Coordination Committee’s (ECC) consideration. In another proposal Ogra has indicated that prices of petroleum products may be increased from January 1.
“The petroleum and natural resources ministry has sent a new summary to the ECC, proposing that the tender should either be floated again or the contract awarded to [a company named] 4Gas,” the ministry’s federal secretary Imtiaz Kazi said on Thursday. Kazi said that the entire process of retendering and awarding the contract to a new party will take at most six months and could help save money, as new discoveries in the US have brought down LNG prices in the international market. However, he said, nothing could be said about this with surety just yet.
He said that should the ECC cancel the project, it will not have adverse consequences for Pakistan as the government had taken certain measures to avoid a legal battle.
Earlier this year, under the Mashal LNG import project, Pakistan awarded the contract to GDF-Suez for importing 3.5 million tons of LNG per annum (500 million cubic feet of gas per day) which could generate 2,500 megawatts of electricity per day. For setting up the terminal, the contract was awarded to 4Gas. However, following media reports that the government had lost $1 billion due to awarding the contract to GDF-Suez, the Supreme Court (SC) directed the government to revisit its decision and bundle together the two projects (supply and building the terminal).
The petroleum ministry has now sent a summary for awarding the contract to the same party as earlier, taking the plea that the SC did not ask for retendering. However, the law ministry opined that instead of awarding the contract to the same party, the petroleum ministry should retender it. This difference of opinion has led to a tug of war between the two ministries.
Kazi also indicated that prices of petroleum products may be increased from January 1, due to a hike in oil prices. This increase, he said, will have to be passed on to consumers as “one has to keep a realistic link with the international market”.
According to the Oil and Gas Regulatory Authority (Ogra), petroleum product prices have increased from three to nine per cent in the international market. Petrol prices have increased by 9.2 per cent, kerosene oil by 5.4, high-speed diesel by 5.8, furnace oil by 3.1 and Arab light crude oil by 6.6 per cent.
Ogra has proposed a minimum of six to eight per cent surge in the prices of petroleum products. The government, however, is in a fix whether or not to pass on the increase or absorb it – as it did last month by taking a hit of Rs1.5 billion.
“The government earns Rs250 billion in revenue from petroleum products. The decision of not passing on the increase will not only affect revenue but also result in additional burden on the budget in the form of subsidies,” Kazi said.
He said that to meet the soaring energy needs, the government was working on a four-tiered strategy. It was also working on exploiting domestic oil and gas reserves and the work on the 7.6-billion-dollar Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas import project was in full swing. He also said that India was still an active partner in the 1.2-billion-dollar Iran-Pakistan-India (IPI) gas pipeline project.
He also said that there was significant progress on import projects as the private sector had also come forward to import LNG. However, the import by private sector is subject to sovereign guarantees. He said that Independent Power Producers (IPPs) in Punjab have sought permission for LNG import and want to use the government’s gas supply system.
Published in The Express Tribune, December 31st, 2010.