LPG production at Jamshoro plant hits snag
Zero duty and taxes on import of machinery and equipment for the installation of new LPG production plants/facilities have been proposed. PHOTO: FILE
Liquefied petroleum gas (LPG) production by Jamshoro Joint Venture Limited (JJVL) has hit a snag, pushing the country towards more imports.
Legal opinion on extension in a contract between JJVL and Sui Southern Gas Company (SSGC) has been pending before the Law Division since August 21, 2020.
On a proposal of the Petroleum Division, the Economic Coordination Committee (ECC) took up JJVL’s expired agreement with SSGC in its meeting on August 21, 2020, and gave, in principle, approval for the resumption of LPG/ natural gas liquid (NGL) production by the JJVL plant under proposed conditions subject to endorsement by the Attorney General of Pakistan. Sources in the Petroleum Division said that the division had not received any opinion from the Law Division and the extension in contract was still pending.
The LPG/NGL production facility near Hyderabad was operating under an agreement approved by the Supreme Court. The agreement was up to June 20, 2020 and was extendable with mutual consent of the parties concerned.
JJVL stated that SSGC did not extend the agreement and as a result daily production of about 400 tons of LPG and 120 tons of NGL went offline and it had to be substituted with imports.
The reason SSGC provided for not extending the agreement was that it was not profitable for the gas utility.
Separately, on orders of the Supreme Court of Pakistan, AF Ferguson and Company (AFFCO) was appointed to determine an equitable revenue-sharing formula for SSGC and JJVL. AFFCO has submitted its report to the Supreme Court and independently assessed that the arrangement between JJVL and SSGC is profitable for SSGC, and thus is in the public interest, JJVL stated.
JJVL pointed out that on the issue of petroleum development levy (PDL) payment, gas supply had not been resumed. The PDL issue is pending before the Lahore High Court and the court has ordered that no coercive action shall be taken, it said.
JJVL was of the view that the substitution of domestic production with costly LPG imports would cost the country over $40 million in foreign exchange annually. “It will also affect over $12 million worth of NGL exports.”
JJVL said that downstream investment in the value chain had created about 5,000 jobs. Since 2005, JJVL said it has produced over 1.7 million tons of LPG and over 600,000 tons of NGL.
In 2003, SSGC awarded rights for the extraction of LPG and NGL from the Badin gas field through a tender and by signing an implementation agreement with JJVL. The agreement expired on June 20, 2020.
The JJVL plant has been closed since then, resulting in reduction of LPG production by about 250 tons per day.
On June 20, 2020, SSGC conveyed to the Petroleum Division the decision of its board of directors to not extend the agreement, after extensive deliberations on technical, commercial and legal aspects.
The arrangement between SSGC and JJVL is a commercial agreement and the board is fully empowered under the law to decide the affairs in the best interest of SSGC, it said.
Published in The Express Tribune, March 11th, 2021.
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