Govt moves to take over second LNG terminal’s assets

Petroleum Division submits plan with CCoE after PGPC moved LCIA challenging termination of agreement


Zafar Bhutta April 03, 2020
Representational image. PHOTO: REUTERS

ISLAMABAD: As the Pakistan GasPort Consortium Limited (PGPC) has moved the London Court of International Arbitration challenging the termination of Operations and Services Agreement (OSA) by the government, the Petroleum Division on Thursday submitted a plan before the Cabinet Committee on Energy (CCoE) to take over its assets.

The PGPC – the country’s second LNG terminal – has referred the disputes to be finally resolved through arbitration at the London Court of International Arbitration. Proceedings have been initiated and are currently pending for want of the Pakistan LNG Terminals Limited’s (PLTL) response, which is being unduly delayed.

Pakistan has faced several cases in international courts and this new case has been moved to London Court of International Arbitration following termination of contract by the PLTL.

Sources told The Express Tribune that two options were presented before the CCoE to take over assets of the second LNG terminal.

In order to secure the LNG supply chain, the Petroleum Division claims that OSA provides the PLTL the right upon expiry or earlier termination of OSA, purchase, lease of the services infrastructure.

Under one option, the CCoE was informed that the PLTL may purchase the jetty from the PGPCL.

Other options are lease of floating storage and regasification unit from the BW Group, connecting pipeline and their jetty from Fauji Oil Terminal and novation of implementation agreement from the Port Qasim Authority (PQA).

Under the second option, the Petroleum Division proposed that as an alternative to taking over the operations of the second LNG terminal by PLTL, OSA also provides for appointing a substitute operator through a transparent and competitive bidding process. This option ensures that original mandate is preserved and public-private partnership is promoted and continued.

Ernst and Young was engaged by the PLTL for financial due diligence and subsequent project financing for acquisition of assets of Terminal-2. Total funding required for the project is Rs13.5 billion. The project will be financed through a mix of 65.35 debt and equity ratio which will require an equity injection of Rs4 billion whereas Rs8.8 billion would be raised from commercial banks.

According to the PLTL, from the financial due diligence of the consultant, a project is commercially found viable with IRR 26 per cent with manageable risk and payback period.

The PLTL had further informed that there was potential of passing on benefit to the public because of levelised tariff of 38.67 cents per mmbtu.

However, the PLTL said that the PGPC attempted in utmost good faith to amicably resolve the dispute. The PGPC offered concessions beyond its contractual obligations, however, unfortunately, the parties could not settle the disputes.

The PGPC has, therefore, referred the disputes to be finally resolved through arbitration at the London Court of International Arbitration. The PGPC, upon guidance from legal counsel, believes it has a high-probability of success in both claims.

“Pending the outcome of the dispute resolution, both parties are obligated to perform their respective obligations thus ensuring commitment of operations of the terminals,” the Petroleum Division officials informed the CCoE, adding that the matter of appointing legal counsel for international arbitration is under consideration with the attorney general for Pakistan.

According to a statement, Minister for Planning, Development and Special Initiatives Asad Umar chaired a meeting of the CCoE.

On a summary of the Petroleum Division regarding negotiations with the LNG terminal companies, the CCoE set up a subcommittee to deliberate the matter and report back to the CCoE within a week. The Petroleum Division also apprised the CCoE on the updated status of the dispute between Pakistan LNG Terminal Ltd and the PGPC.

The Power Division briefed the committee on various measures which were under consideration to reduce electricity prices. The proposal included measures such as rationalising the capacity charges of the government-owned power plants, exploring the possibility of extending the tenor of loans of various power plants and fuel cost optimisation.

The CCoE set up deadlines for various actions to be completed to achieve their objectives.

Officials said that the government wanted state-owned power plants to voluntarily reduce capacity charges in the wake of coronavirus.

The CCoE was also apprised about the tax refund issues of the power sector and the need to streamline the process of payment of general sales tax by the power distribution companies.

The CCoE decided to recommend to the cabinet that the pending tax refunds may be paid forthwith.

Officials said that the Petroleum Division had also submitted a summary to shut down three refineries and operate two – ARL and Parco.

They said that a summary regarding optimisation of use of LNG in the power sector was also taken up.

It was proposed that the LNG importers should take up the matter of reducing supplies from exporters but no decision had been taken in this regard.

 

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