Pakistan's Finance Division refuses guarantee to LNG importer

Cites fiscal constraints being faced by govt, IMF loan terms

ISLAMABAD: The Finance Division has turned down a request of state-run Pakistan LNG Limited (PLL) for additional guarantees worth $150 million in the wake of fiscal constraints and to avoid violation of loan terms agreed with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF).

PLL - which imports liquefied natural gas (LNG) - is facing a default-like situation due to the piling up of circular debt. The company is facing cash constraints due to revenue shortfall as Sui Northern Gas Pipelines Limited (SNGPL) has to pay dues amounting to over Rs55 billion by recovering from power producers and Rs11 billion from Sui Southern Gas Company.

Apart from these, it has to recover Rs12.79 billion from the government as fuel supply subsidy provided to the export-oriented industry and fertiliser plants, and Rs22 billion on account of tariff differential for the supply of re-gasified LNG to domestic consumers.

In order to cope with its declining working capital, sources told The Express Tribune, PLL took up the matter of additional government guarantee of $150 million with the Finance Division. However, the division turned down the request, citing fiscal constraints being faced by the government while remaining within the IMF loan programme.

The issue came up for discussion among economic managers in a recent meeting of the Economic Coordination Committee (ECC) of the cabinet.

At present, the company has billions of rupees worth of receivables to be paid by SNGPL and at the same time, its government guarantee of $150 million has almost been exhausted, creating difficulties for the company in making additional commercial borrowing.

PLL is a subsidiary of Government Holdings (Private) Limited, which is fully owned by the federal government. It was established with an initial equity of Rs15 billion. Soon after its incorporation, the company started LNG import by the end of 2017 and has so far entered into two medium and long-term LNG supply contracts besides utilising the entire contracted capacity of the second LNG terminal run by Pakistan GasPort Limited (PGPL).

Unlike LNG import by PSO, which is covered by different contracts from shipment to supply to end-consumers, PLL could not enter into LNG supply contracts with the consumers despite securing a marketing licence from the Oil and Gas Regulatory Authority (Ogra).

Consequently, the government decided to utilise the LNG imports made by PLL up to the full contracted capacity of the PGPL terminal, ie 600 million cubic feet per day (mmcfd), through SNGPL.

However, the arrangement between PLL and SNGPL could not be provided with any legal cover. The Cabinet Committee on Energy and the ECC had decided that PLL and SNGPL would supply only 185 mmcfd to an LNG-based power project, which has not yet been commissioned.

Both PLL and SNGPL were keen to execute a gas sale and purchase agreement for the supply of 600 mmcfd of LNG but with opposing views about payments for supplies above 185 mmcfd.

“While PLL is making up for the shortfall through market financing, the government of Pakistan is engaged with the IMF to review the overall guarantee requirement in the first review of the Extended Fund Facility,” said a spokesperson for the Finance Division.

Published in The Express Tribune, October 8^th, 2019.

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