The Petroleum Division has requested the Cabinet Committee on Energy to take a decision about a case regarding termination of the second Liquefied Natural Gas (LNG) terminal contract in the light of the advice of some external legal experts.
In October 2019, the Pakistan LNG Terminal Limited (PLTL) terminated the operation and services agreement (OSA) with LNG terminal owned by the Pakistan GasPort Consortium Limited (PGPCL) because of the latter’s failure in depositing fresh credit rating guarantee equal to $10 million in cash or asset value of $15 million.
The PGPCL—the wholly owned subsidiary of Pakistan GasPort Limited (PGPL) that owned and operated the 750mmscfd LNG import terminal at Mazhar Point, Port Qasim in Karachi – later moved the London Court of International Arbitration (LCIA).
The PLTL faced the first set back when the court ruled in favour of the PGPL regarding consolidation of two cases. Two separate arbitrations had been filed in the court –one related to liquidity damages (LDs) and second to termination of LNG Services Agreement (LSA).
The PGPCL filed for consolidation of both actions into one case. The PLTL argued against consolidation of the two cases. The same arbitrator now will listen to both cases.
The Cabinet Committee on Energy in its meeting held on April, 2, 2020 had directed the Petroleum Division to seek legal opinion of Attorney General of Pakistan (AGP) and Law and Justice Division in the matter of the two disputes.
The Petroleum Division had approached the AGP and Law and Justice Division for legal opinion on the issue. However, both the AGP and the Law and Justice Division stayed away from furnishing advice and advised to get opinion of external experts. Later, it sought opinion of Ebrahim and Hosain counsels.
The legal experts informed the government that as per Contract Act Section 74, the PLTL will have to demonstrate actual loss – contract LD serves only as a cap – but no material is available to assess the actual loss.
They said no consequential losses were allowed in contract and therefore $71 million claim filed by PLTL will fail. The PLTL had imposed $41 million for delay LDs and $71 million as consequential damage.
The PGPCL said the delay was because of the PLTL and claimed $97million LDs. Contractual procedure to settle disputes failed, now the claims are in the LCIA. Legal experts said there are some weaknesses but a good chance of defending against $97 million claim.
However, they said as per Contract Act Section 74, the PLTL will have to demonstrate actual loss and no material is available to assess actual loss. They said no consequential losses were allowed in contract and therefore $71 million claim will fail.
About contract termination, the financial security of the PGPCL lapsed giving rise to termination rights. The PLTL issued termination notice and 3 months later security was restored. The PGPCL disputes termination in the LCIA. The Islamabad High Court (IHC) has also granted injunction with status quo.
The legal experts in their opinion said the PLTL was within its rights to issue notice of termination. The PGPCL submitted draft security documents; correspondence implies tacit acceptance of process by the PLTL. This is a "basis for a formidable challenge".
They said there was good basis for the PLTL to fight the claim but the correspondence could be construed to have given time to the PGPCL. They further said there is no direct financial loss or operational problem in this 3 month period.
The Petroleum Division asked the cabinet body if the PLTL should continue with arbitration on the LD and termination claims. It said the PLTL would be able to win only those LDs which it can prove as real loss in international court.
The cabinet body has directed the Petroleum Division to submit a specific proposal in this regard.
According to the Petroleum Division’s spokesperson, consolidation of two cases is a procedural matter and has no relation with the merits of the case or a setback of any kind.
“The PLTL claims represent actual losses suffered by people of Pakistan due to delay by the PGPCL to complete the terminal by 6 months. The PGPCL claims are baseless as they were themselves responsible to complete the terminal on time which they failed and now trying to blame it on the PLTL.”
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