ISLAMABAD: Within days of its inauguration, tax authorities and owners of the second liquefied natural gas (LNG) terminal have been locked in more than a billion-rupee tax dispute as the company has refused to pay import duty on the floating terminal due to a legal lacuna.
Before the start of its Floating Storage and Regasification Unit (FSRU), Pakistan GasPort Consortium (PGPC) was supposed to pay roughly Rs1.5 billion in customs duty at 5% of the FSRU value, said sources in the Federal Board of Revenue (FBR).
But the consortium disagrees with the FBR’s viewpoint and is reluctant to pay the duty on the grounds that the terminal falls in the category of ‘temporary imports’ which is exempted from duties and taxes.
The second LNG terminal that Prime Minister Shahid Khaqan Abbasi inaugurated last month is fully operational, though the tax dispute has not yet been resolved.
PGPC is a subsidiary of Pakistan GasPort Limited (PGPL) that owns and operates the 750mmcfd LNG import terminal at Port Qasim, Karachi. The terminal is expected to provide fuel to 3,600-megawatt LNG-fired power generation plants in Punjab.
Due to the terminal’s inauguration by the PM, the FBR’s collector customs could not press the case for duty collection upfront, said sources.
The total value of taxes and duties on the FSRU was roughly Rs2.7 billion including the withholding tax. However, the FBR has given an exemption certificate due to the advance income tax it received from the company.
This has reduced the disputed amount to around Rs1.5 billion being calculated on the basis of $270-million (Rs29.9 billion) value of the FSRU.
Sources said there was immense pressure on the FBR from the energy ministry and the Prime Minister’s Office not to block the terminal’s operations. They asked the FBR to let the LNG carrier offload gas in order to avoid demurrage charges.
The terminal is providing LNG storage and regasification services to state-owned Pakistan LNG Terminals Limited (PLTL) for up to 600 mmcfd for 15 years. It charges $0.4177 per mmbtu in tolling fee. PLTL imports LNG and pays all the applicable duties and taxes.
Engro’s Elengy Terminal – the country’s first LNG terminal – charges $0.66 per mmbtu. One of the reasons behind the high fee was that Engro paid 5% in duties on imports.
Sources said the FBR resisted the pressure for some time, fearing the issue may land it in trouble, if the National Accountability Bureau jumped in.
The FBR’s contention was that the 15-year agreement could not be treated as temporary import. However, PGPC’s view was that the FBR had not defined temporary import in the law.
Sources said the terminal’s owners offered to renegotiate the agreement’s tenure but were not willing to pay duty. They have also threatened to go to court as they believe the FSRU cannot be taxed as per bidding documents.
Sources said the FBR was also reluctant to waive Rs1.5 billion worth of duty as Engro also paid the same duty. FBR spokesman’s version was awaited till the filing of the story.
“There is a difference of interpretation over the 5% customs duty applicable on the brand new FSRU valued at $270 million,” said a PGPC spokesman.
He said the FSRU was an import-cum-export matter and “PGPC is committed to honouring its obligations under the contract and the law”. He said the project represented an investment of half a billion dollars.
The PML-N government has started using LNG in power generation and sees it as a solution to the country’s chronic power outages and high cost of energy basket. The country is currently importing over 4.5 million tons of LNG per year, which is expected to double after inauguration of the second terminal.
Published in The Express Tribune, December 26h, 2017.