SSGC ends LPG contract with JJVL

Discontinues agreement with joint venture firm pushing 300mt out of system

ISLAMABAD: Sui Southern Gas Company (SSGC) has discontinued a liquefied petroleum gas (LPG) extraction contract with Jamshoro Joint Venture Limited (JJVL), pushing 300 metric tons of locally produced LPG out of the system, which accounts for 15% of total supply in the country.

The SSGC management discontinued the contract following a decision made by the board of directors in a meeting on Saturday last week. The board decision will not only deprive the country of 15% of LPG production but will also cause the company revenue loss of billions of rupees.

SSGC received Rs500 million in royalty on account of LPG extraction by a JJVL plant between January 2019 and March 2020.

In a letter dated June 20, 2020, SSGC told JJVL that it would not be extending the Supreme Court-validated agreement of December 2018 for local LPG and NGL production at JJVL’s facilities.

SSGC discontinued the gas supply contract with JJVL at midnight on June 20. The discontinuation of 300 metric tons of LPG production per day comes at a time when the country is already reeling from an oil crisis.

LPG production by JJVL had been catering to energy needs of over 750,000 homes across Pakistan.

“JJVL invites your kind attention to letters from the Ministry of Energy (Petroleum Division). The letters, in fact, form directions from the ministry that SSGC not only continue local LPG production but also enhance it. The SSGC’s decision of June 20, 2020, contravenes these instructions,” JJVL Director Fasih Ahmed said in a letter written to Special Assistant to Prime Minister on Petroleum Nadeem Babar.

Furthermore, he said, the SSGC board meeting of June 20, in which it was decided to shut down local LPG/NGL production, was attended by at least four directors of SSGC LPG (Private) Limited (SLL), whose sole interest is to ensure that SLL’s LPG import terminal is extensively utilised by encouraging imports and curtailing local production.

LPG importers are seeking additional concessions from the state to crowd out local LPG production. Normally, the government supports local production not only by extending protectionist measures but also by allowing higher prices to support domestic employment and tax generation.

Ahmed said JJVL was never given the opportunity by either the government or the SSGC board to explain its viewpoint and therefore an ill and inadequately informed decision was taken.

JJVL requested the government to direct SSGC to resume gas supply with immediate effect in line with the Supreme Court-validated agreement on an ad hoc basis; and immediately submit all required data to AF Ferguson and Co for final determination of revenue sharing between SSGC and JJVL, as had been directed by the Supreme Court of Pakistan in December 2018.

He said SSGC should be advised to bring on record the report of its consultant, “who, we understand, has recommended that it is not viable for SSGC to set up its own LPG plant and it should continue arrangements with JJVL”.

SSGC version

Commenting on the development, an SSGC spokesperson told The Express Tribune that as per the Supreme Court of Pakistan decision dated December 4, 2018, the agreement between SSGC and JJVL was for a period of 18 months and it expired automatically.

He said the National Accountability Bureau (NAB) had never asked not to extend the LPG contract with JJVL.

He said this interim arrangement was under the SC decision, which was only for 18 months and expired automatically. “There will be additional 8-10mmcfd available to SSGC due to this closure which can be supplied to the power sector or industry or it can be put in the transmission system. It can fill the shortage, which could have otherwise been filled by importing LNG through paying foreign exchange.”

About participation of SLL board members in the board meeting, he said there was no conflict as SLL was a 100% wholly owned subsidiary of SSGC and SLL directors were always from the management and board of directors of SSGC.

Published in The Express Tribune, June 23^rd, 2020.

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