New LNG policy: Govt to seek $35 million guarantee from developers

The draft of LNG Policy 2011 will soon be tabled before Economic Coordination Committee.


Zafar Bhutta August 12, 2011

ISLAMABAD:


The government has decided to seek a performance guarantee of $35 million from investors interested in the import of Liquefied Natural Gas (LNG), sources said on Thursday.


They said that the decision was to keep those parties out which would try to get into the LNG business through “back-door channels” under the proposed LNG Policy 2011.

The Ministry of Petroleum has finalised the draft of LNG Policy 2011 that will soon be tabled before the Economic Coordination Committee (ECC) of the cabinet for formal approval.

They said that the performance guarantee condition would also apply to the three parties which had received conditional construction licences of LNG import projects from the Oil and Gas Regulatory Authority (Ogra).

These three parties include Turkey’s Global Energy Infrastructure Limited, Pakistan Gas Port and Engro Corporation.

The government has set the deadline of October 2012 for the completion of LNG import projects.

They said that the government would confiscate the performance guarantee of these parties if they failed to meet the deadline after the proposed LNG Policy 2011 was approved by the ECC.

“At present, politicians and some ministers are trying to influence departments concerned to waive off some conditions to get licences of LNG import projects,” one source said.

“Minister for Petroleum and Natural Resources Dr Asim Hussain has taken initiatives to incorporate three conditions in the existing LNG Policy 2006 to get quality investors,” it said, adding that the new conditions to be incorporated in the proposed LNG Policy 2011 included (i) the licensee would ensure the delivery of LNG on a fast track basis (ii) the licensee would furnish a guarantee against its commitment and (iii) if the licensee failed to deliver LNG by the stipulated date, its “first right to third-party access” would be waived off.

Sources said that if an interested party failed to complete work on an LNG import project within the stipulated time, the government would not allow that party to use the infrastructure of Sui Southern Gas Company (SSGC) to transport gas under its “first right to third-party access”.

The government will not provide any guarantee for LNG import projects under LNG Policy 2011. However, if needed, government support may be considered to ensure long-term, secure LNG supplies to Pakistan, they said.

The incentives the government will offer include zero per cent customs duty on imported LNG and exemption from withholding tax at the import stage for buyers or developers importing LNG, they said, adding that the Federal Board of Revenue would soon issue a notification in this regard.

Any imported plant, equipment and machinery, which is not manufactured locally, will also be exempted from withholding tax the at import stage under the Second Schedule of the Income Tax Ordinance, 2001.

Initial allowance will be admissible at the rate of 50 per cent of the cost of depreciable assets under Section 23 of the Income Tax Ordinance, 2001. In addition, normal deprecation at the rate of 10 per cent will also be allowed on plant and machinery.

Published in The Express Tribune, August 12th, 2011.

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