Talking business

Issue is the dispute between Engro Vopak Terminal Ltd and Lotte PPTA over the use of a chemicals jetty at Port Qasim

On the face of it, it’s a technical dispute between two commercial parties.  But scratch deeper and you’ll find that important issues are at stake.

The issue is the dispute between Engro Vopak Terminal Ltd (EVTL) and Lotte PPTA over the use of a chemicals jetty at Port Qasim. EVTL is a joint venture between Engro Chemicals and Royal Vopak of Netherlands, and specialises in chemicals storage and handling. A Lotte is a Polyester manufacturer, formerly known as ICI but purchased by Korean money in 2009.

In 1996, ICI entered into an agreement with EVTL for “Reception, Storage and Delivery of Paraxylene and Acetic Acid”, an agreement to remain operative for 15 years.  ICI struggled with the terms of the agreement, running in the red all the way till 2008, unable to pay any dividend to its shareholders for seven years after commissioning, and accumulating losses of almost 13 billion rupees in the first decade of operations.

The dispute itself is simple – Lotte PPTA alleges that EVTL charges exorbitantly for use of its chemical jetty at Port Qasim because it has a monopoly, no other chemical jetty exists to handle the chemicals Lotte uses. The dispute can largely be left to the two parties to resolve between themselves, and that is precisely what the Competition Commission of Pakistan (CCP) did in its enquiry report of March 2011 where it denied that EVTL was abusing its dominant position in the market, essentially telling both sides that an agreement is an agreement and if Lotte feels let down by the projections made by ICI more than a decade ago is regrettable, but a legal remedy may be difficult to arrange.

But there is more to the story than just a pricing dispute.  The CCP has ruled that the Implementation Agreement between EVTL and Port Qasim needs to be strengthened to allow for greater transparency.  This is fine, and none of the parties to the dispute is sure what to make of it. Today the authorities at Port Qasim will be sitting down to review the order issued on June 29th regarding the implementation agreement. Lotte and EVTL will take a little longer to review the order, and none is sure as of right now how much impact the order is going to have on their position.

Second is the impact that the order has on the handling agreements that Port Qasim has with parties such as Fotco.  In all, four parties besides EVTL are likely to be impacted if the implementation agreement needs significant reworking.  Other than the oil terminals, a grain terminal and an under construction coal jetty all have exclusive implementation agreements with Port Qasim, and their managements are also busy poring over the details of the CCP’s order to see if their agreements will be impacted in any way. None of these other parties is part of the dispute between Lotte and EVTL, but they’re caught in the crossfire. One response might be what the Independent Power Producers did in the summer of 2008 when the circular debt was spiraling out of control: they fell in line behind Hubco, turning the muscular power giant into a “pack leader” of sorts. Will EVTL allow itself to become a “pack leader”?

The biggest story here is the implications for infrastructure and industrial expansion.  Both parties in the dispute are giants in their field. Engro has been bold in pursuing public/private partnerships in infrastructure development, with their stake in the most lucrative block in Thar being a classic example.  And Lotte is a big player in our raw materials industry, sitting on the largest investment in the petrochemical sector, and producing an essential raw material for our largest manufacturing sector: textiles.  Both are vital to Pakistan’s industrial future. That makes this dispute all the more important to work out amicably, the stakes are too high to just leave both parties to their own devices. the writer is Editor Business and Economic policy for Express News and Express 24/7

Published in The Express Tribune, July 4^th, 2011.