ECC gives nod of approval for $15b LNG deal with Qatar

Published: January 14, 2016
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Additionally reduces Punjab and Sindh wheat export quotas by half. PHOTO: AFP

Additionally reduces Punjab and Sindh wheat export quotas by half. PHOTO: AFP

ISLAMABAD: 

The government on Wednesday approved in principle the $15-billion Liquefied Natural Gas (LNG) import deal after Qatar agreed to cut its sale price to 13.39% of Brent, which would result into an annual saving of $42 million at current crude oil prices.

“The Economic Coordination Committee (ECC) of the Cabinet authorised Pakistan State Oil (PSO) to sign the Sale Purchase Agreement (SPA) with Qatar subject to approval of commercial aspects by the PSO Board,” Petroleum and Natural Resources Minister Shahid Khaqan Abbasi told The Express Tribune.

Headed by Finance Minister Ishaq Dar, the ECC approved signing of the LNG SPA with Qatar Gas Operating Company-2 and authorised PSO to execute the agreement under government to government arrangement after completing the due process, according to a Finance Ministry handout.

The official documents showed that the deal has been authorised for 15 years, starting from 2016 to 2031. The price can be renegotiated after ten years.  The petroleum minister did not disclose the sale price, saying this would be announced when the SPA is signed with Qatar.

A top government functionary told The Express Tribune that the ECC approved the price committee recommendation. The committee had recommended the price at 13.39% of the Brent slope, which was lower than the 13.90% price which Qatar had earlier offered. Overall, at the existing rates, the 15-year deal cost would come down to $15.3 billion from the earlier estimated price of $16 billion.

Last week, a report had quoted the petroleum minister as saying that at 13.39% of Brent price, the delivered LNG price at Port Qasim would be $5.50 per million british thermal units (mmbtu).

According to the proposed SPA, in the first year Qatar will supply a minimum 1.5 million tons per annum (mtpa) of LNG which can be increased up to 3 mpta at PSO’s request in the first two years. From January 2018 until December 2031, the volume will be 3 mpta and Pakistan will have to buy the entire quantity or pay the full price.

The documents showed that the SPA agreement can be terminated due to either party’s insolvency, and due to material breach of the agreement. In case PSO fails to pay the due amount or fails to replenish the Standby Letter of Credit or the bank issuing the letter falls below the required credit rating, the Qatar government can cancel the deal.

In case of dispute, the English law will be applicable. Three arbitrators in accordance with UNCITRAL Rules of Arbitration in London, UK, will finally settle any dispute that is not technical. If the parties fail to appoint the arbitrators, the Court of Arbitration of the International Chamber will appoint the arbitrators.

Wheat export extension

Amid Punjab government’s opposition, the ECC gave a six-month extension for export of wheat at subsidised rates.

In January last year, the ECC had allowed Punjab to export 800,000 metric tons of wheat and to Sindh 400,000 metric tons till September 2015. However, Punjab could only export 232,000 metric tons while Sindh exported 94,000 metric tons of wheat.

Punjab availed $65 per metric tons subsidy and Sindh got $45 subsidy, as the prices in the international market are lower than the domestic rate.

While allowing extension, the ECC halved the quotas of Punjab and Sindh. The Punjab government was not in support of the extension amid its apprehensions that the exporters were claiming the subsidy without exporting the quantity, according to Ministry of Food and Agriculutre summary.

The ECC also linked Rs13 per kilogramme export subsidy on sugar export to millers with procurement of sugarcane from growers at official rate of Rs180 per 40 Kg.

Published in The Express Tribune, January 14th, 2016.

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