LNG supply disruption: Terminal operator exempted from liquidity damages

Gas supplier will be bound to pay such penalty


Zafar Bhutta April 13, 2016
If the power producer fails to accept a minimum quantity of re-gasified LNG as per terms of the agreement, it will be liable to pay the amount equivalent to the notified price. PHOTO: AFP

ISLAMABAD:


Economic managers of the country have exempted Pakistan RLNG Terminal Limited from paying any liquidity damages in case of interruption in liquefied natural gas (LNG) supply and instead the penalty will be paid by the supplier Pakistan RLNG Limited.


The terminal company will receive $0.72 million per day in capacity charges from Sui Southern Gas Company (SSGC) in case of disruption in gas supply but the former has been exempted from paying any such charges.

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The Economic Coordination Committee (ECC), in its meeting held on April 4, decided that Pakistan RLNG Limited would be the supplier of re-gasified LNG instead of Pakistan RLNG Terminal Limited. This absolves the terminal operator of paying any damages even if it is responsible for the interruption in gas supply.



The Ministry of Water and Power recalled in the meeting that the ECC had reviewed its summary seeking approval for an extension in the bid submission date for the 1,000-megawatt re-gasified LNG-based independent power plants (IPPs), the open-cycle operation date and the commercial operation date in a huddle on March 18, 2016.

It said the committee put off a decision on the liquidity damages claimed by the power purchaser from the gas supplier with a directive to the secretaries of water and power and petroleum and natural resources ministries that they should hold a consultative meeting to finalise the issue.

Accordingly, a meeting was held with the petroleum and natural resources minister and the secretary petroleum.

The two ministries agreed that during the open-cycle operation of a project, if re-gasified LNG supply is stopped by the supplier other than any force majeure situation, the power producer will receive liquidity damages under the Gas Sales Agreement equivalent to the amount of applicable damages under the Power Purchase Agreement.

However, if the power producer fails to accept a minimum quantity of re-gasified LNG as per terms of the agreement, it will be liable to pay the amount equivalent to the notified price. If this LNG could be diverted to some other customer, then the power producer and the buyer will only be liable to pay the price differential, if any.

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The re-gasified LNG supplier will not be liable to bear any liquidity damages for stopping supplies if the power producer defaults on payment of the due amount.

After reviewing all these proposals, the ECC gave its approval, enabling the gas supplier and power producers to sign an agreement on LNG supply.

The Ministry of Water and Power told the ECC that the Private Power and Infrastructure Board (PPIB) had invited bids for 1,000MW LNG-based IPPs through the national and international media on February 10 this year. Bidders were required to submit offers by March 22 and start open-cycle operations by April 15, 2017 and commercial operations in the combined-cycle mode by February 15, 2018.

It was agreed to extend the bid submission date to April 5, 2016, open-cycle operation date to April 30, 2017 and commercial operation deadline to March 2, 2018.

It was also agreed that in case of interruption in re-gasified LNG supply during the open-cycle operation, the liquidity damages imposed by the power purchaser will be paid by the gas supplier.

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

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