Pakistan is on the verge of signing a groundbreaking long-term agreement with Azerbaijan to import liquefied natural gas (LNG) at the world’s cheapest spot price, bringing significant relief to businesses and households in the country. The agreement is scheduled to be signed at the government-to-government level on July 24 (Monday), according to State Minister for Petroleum Musadik Malik.
The agreement mandates Azerbaijan to offer one cargo of LNG at the prevailing world’s lowest price every month, providing Pakistan the flexibility to accept or reject the offer without giving any reason. To ensure transparency and prevent corruption, the Cabinet has approved an algorithm that guarantees the LNG cargo will be offered at the most competitive price.
This algorithm outlines several criteria for acceptance, including the requirement for LNG fuel, the price competitiveness compared to other fuel sources for the month, and the availability of sufficient foreign exchange to make the purchase. Additionally, the offered price must be lower than the previous 30-day average on the LNG indices and must be the lowest price available on the day the cargo is offered.
In this unique business deal, Pakistan has the right to reject all 12 cargoes offered over a one-year period without any explanation. However, Azerbaijan is bound to offer the next cargo the following month and in the years to come. This agreement presents an unprecedented opportunity for Pakistan to access affordable LNG from around the world through Azerbaijan’s extensive trading network.
Malik emphasised that the benefits of this deal would extend to all industries and households in Pakistan. The objective of the agreement with Azerbaijan is to make cheaper fuels accessible to industries while also alleviating the burden on households.
Regarding the supply of subsidised gas to fertiliser manufacturers, Malik opposed renewing the agreement and instead proposed a direct subsidy to farmers to reduce their input costs. The current agreement with fertiliser manufacturers is set to end in one to two months.
In an effort to further promote energy independence and efficiency, the state minister encouraged the private sector to take charge of importing LNG from various sources worldwide. Forming consortia for this purpose could enable businesses to secure LNG at even more competitive prices, fostering a robust and dynamic energy market.
$14 billion refinery project
Turning to the $14 billion refinery project, the minister expressed optimism that the incumbent government would sign an agreement with Saudi Arabia to attract investments for establishing a new refinery and upgrading existing ones before the end of its parliamentary term in August 2023. If not completed during this government’s tenure, the project will be positioned for swift implementation by the subsequent administration.
The government has devised two policies to attract foreign investment, with a focus on encouraging the setup of new oil refineries and upgrading existing ones. By importing cheaper crude oil and producing premium refined products domestically, Pakistan aims to reduce the high premiums paid on imports of refined products like diesel, thus saving valuable foreign exchange.
“The premium on crude oil stands in range of $1-2 per barrel, while we have paid a premium of $18-22 per barrel on import of diesel a few months ago. We want to save the higher premium being paid on refined products and save the foreign exchange,” said Malik.
The refineries are deemed essential as Pakistan currently imports 10 million tonnes of refined products. The proposed investments will not only lead to the production of more premium products like petrol and diesel but also help phase out outdated products such as furnace oil.
Margins’ conditioned
In line with promoting fairness and better working conditions, the government has tied an upward revision in petroleum dealers’ profit margins to the well-being of their staff and adherence to approved wages.
To recall, the state minister reached a written agreement with Pakistan Petroleum Dealers Association (PPDA) to increase their profit margins by Monday (July 24) from Rs7/litre. The association had threatened to go on shutter down strike for an indefinite period if the revisions were not made. The agreement with the PPDA includes provisions to improve working hours and provide health facilities to employees.
To determine the new profit margin, the government has initiated data collection from petroleum pumps nationwide. Out of a total of 12,000 pumps, data is being collected from 2,000 to 3,000 pumps.
Published in The Express Tribune, July 23rd, 2023.
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