EETPL said as the energy crisis in Pakistan worsened in 2013, the government, via Inter State Gas Systems, issued an open and competitive tender for the development of an LNG terminal. PHOTO: FILE
“The government does not have a contractual right to reopen/renegotiate its terms and we are accordingly under no obligation to renegotiate the same,” EETPL said in a statement on Friday.
“Engro is under no contractual obligation to renegotiate the contract. We entered into a 15-year deal with the government on the basis of which we undertook this project/investment,” it said.
The LNG import terminal has been in operation since March 28, 2015.
On Thursday, Prime Minister Imran Khan chaired a federal cabinet meeting, which decided to conduct an audit and renegotiate the return on investment and other terms and conditions with the two LNG terminal operators in the country.
At the end of the meeting, Federal Minister for Information and Broadcasting Chaudhry Fawad Hussain and Federal Minister for Petroleum Division Ghulam Sarwar Khan briefed the media about the decision.
Pakistan can import 9m tons of LNG per annum
They said the previous Pakistan Muslim League-Nawaz (PML-N) government had allowed a hefty return on investment of up to 44% and allowed the terminals to charge a heavy penalty of up to $277,000 per day in case the government did not utilise the infrastructure.
EETPL’s tolling facility has enabled the government to procure and distribute LNG in the country.
ROE (return on equity investment) is not the representative benchmark for analysing net returns to shareholders for such tariff-based projects. ROE mechanism completely ignores the fact that a significant component of profits from such projects has to be allocated for loan repayment and only the leftover portion goes to the shareholders as dividend. Instead, the benchmark metric for such projects should be equity IRR (internal rate of return), which takes into account the cash flow returns to shareholders including the timing of these returns, it said.
Cabinet decides to renegotiate LNG deals
“Since then (beginning), the project has handled over 11 million tons of LNG, reducing Pakistan’s gas deficit by an estimated 20-25%. Pakistan has saved well above $1 billion since the start of this LNG project, replacing the import of more expensive furnace oil and diesel with LNG and not accounting for efficiency in terms of fuel,” it said.
“The project has also revived the fertiliser sector, CNG sector and 500+ industrial units by ensuring consistent supply of gas via LNG import,” it added.
Post-completion and commencement of operations, the project has been funded by loans from the International Finance Corporation (IFC) - a member of the World Bank Group, Asian Development Bank (ADB) and local banks namely MCB, Askari Bank and Pak Brunei Investment Company. IFC is also a shareholder in the project.
Trying to explain as how transparent the entire process for the award of the construction contact of the LNG import terminal was, EETPL said as the energy crisis in Pakistan worsened in 2013, the government, via the Inter State Gas Systems (ISGS), issued an open and competitive tender for the development of an LNG terminal.
EETPL participated in the single step, two-envelope bidding process. An independent, professional, international firm - QED - evaluated all technical bids. Of the two bidders, EETPL won the bid for the project strictly in accordance with the Public Procurement Rules, 2004. LNG Services Agreement (LSA) was approved by the Economic Coordination Committee (ECC) of the Cabinet and the Sui Southern Gas Company (SSGC) Board, as well as by the Cabinet, in an auditable and transparent manner. “Any statements to the contrary are not true,” the Engro’s subsidiary said.
Engro’s record achievement of the LNG fast track project allowed for it to be operational from March 28, 2015, in only 335 days, and within the committed time line.
Published in The Express Tribune, October 20th, 2018.
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