Despite a very high circular debt in the liquefied natural gas (LNG) supply chain, Pakistan LNG Limited (PLL) has secured another LNG cargo from Azerbaijan’s energy company Socar for delivery in February 2024.
This came in the backdrop of an agreement signed by the previous Pakistan Democratic Movement (PDM) government with the Azerbaijan company for gas import without any “take or pay damages” clause.
So far, state oil marketing giant Pakistan State Oil (PSO) has been a key importer of LNG, which brings gas from Qatar and supplies it to a public gas utility for onward distribution among consumers.
However, the gas utility has not been able to recover the cost of LNG supply, particularly to domestic consumers. As a result, the receivables of PSO have swelled to Rs568 billion because of the provision of imported LNG.
Successive governments have supplied expensive LNG to domestic consumers to overcome gas crisis in every winter. The current government too is providing LNG to residential consumers, which will result in an addition of Rs70 billion to the circular debt.
Now, the caretaker government has asked the Oil and Gas Regulatory Authority (Ogra) to recover Rs232 billion from domestic consumers as the cost of LNG diverted to them from January. Sui Northern Gas Pipelines Limited (SNGPL) has been diverting LNG to domestic consumers during winters according to directives of the federal government. However, the absence of a legal framework has hindered the recovery of its cost.
Earlier, the Pakistan Tehreek-e-Insaf (PTI)-led government passed a bill in parliament for recovering the weighted average cost of gas, including LNG prices, from domestic consumers. However, the bill was challenged in the Sindh High Court where the provincial government of Sindh also joined the opposition.
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Apart from state companies, the private sector has expressed the desire to import LNG but it could not press ahead with its plans due to bureaucratic hurdles as PLL wants to maintain its monopoly in LNG supplies.
“Private sector can help to curtail circular debt if it is given the go-ahead for LNG import,” an industry official remarked.
In a statement, the Ministry of Energy (Petroleum Division) and PLL announced that they had successfully procured a second LNG cargo from the State Oil Company of the Azerbaijan Republic (Socar) under the Government-to-Government Framework Agreement.
The cargo has been purchased at less than $11 per million British thermal units and is scheduled to be delivered in February 2024, which will further strengthen energy partnership between Pakistan and Azerbaijan. In July 2023, PLL and Socar signed the landmark Framework Agreement, marking a significant milestone in energy cooperation between the two countries. The agreement stipulates that Socar may offer one LNG cargo per month to PLL while the acceptance of these offers by PLL is subject to the demand for LNG in Pakistan and commercial considerations. This is aimed at ensuring a reliable and consistent supply of LNG to meet Pakistan’s growing energy demand.
The successful delivery of the first cargo under this agreement in December 2023 demonstrated the commitment of both PLL and Socar to fulfil the terms of the deal and foster a mutually beneficial partnership.
Published in The Express Tribune, January 18th, 2024.
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