LNG import delay to inflict Rs18b loss
ISLAMABAD:
The controversy surrounding the multi-billion-dollar Liquefied Natural Gas (LNG) import contract will cause a whopping Rs18 billion loss as the gas is meant to replace costly furnace oil for power generation, said a top official on Thursday.
Petroleum and Natural Resources Secretary Kamran Lashari told The Express Tribune in an interview that unnecessary delay in the finalisation of Mashal LNG import project, which is designed to import 500mmcfd gas per day, was causing Rs3 billion or $35 million loss per month.
“We are largely dependent on furnace oil for electricity generation. Had the controversy not arisen, the project would have become operational by the end of 2011. Now it would be completed with a delay of at least six months,” said Lashari.
Under the Mashal LNG import project, Pakistan would import 3.5 million tons per annum LNG or 500 mmcfd gas per day that can generate 2,500 MW of electricity. The imported LNG will help lower the cost of generation by reducing reliance on expensive furnace oil.
The Economic Coordination Committee of the Cabinet, headed by then finance minister Shaukat Tarin, had approved the project on February 9, 2010. The ECC decided to award two separate contracts, one for LNG import to GDF Suez, a French company and the other to set up the terminal to 4Gas – a Dutch company.
However, in March a news story claimed that the deal, if signed, would cause a loss of $1 billion, as the ECC awarded the contract to the highest bidder. The Supreme Court took notice of the news and directed the government to reconsider the project and award one integrated contract to 4Gas Company for both LNG import and setting up of terminal.
However, a four-member negotiating committee had decided the bifurcation of the project into two after finding that 4Gas Company was not financially sound.
Because of the controversy, the government has taken a cautious approach and the ECC on July 20 referred the contract to the law ministry in order to be sure that the contract was in line with the SC directives.
Meanwhile, Lashari was of the view that, “We should keep national interest uppermost. It has not been established at any stage that there was a loss of even one dollar.”
The petroleum secretary said that the project would be signed within a month after ECC’s approval. This done, the government would issue a letter of award to the 4Gas company. From that stage to the commissioning of the project, it would take 24 to 28 months. Now, instead of completing at the end of 2011, the project would be commissioned by June 2012.
The secretary said that, in light of the Supreme Court decision, the gas supply would now be the responsibility of the 4Gas company. It would degasify the LNG and supply to the government. In case of delays or hiccups, the company would be liable to penalties.
4Gas had informed the government that it could only provide a terminal and the government may find another party for supply of gas. Now, the 4Gas company would sub-let the LNG import contract to GDG Suez.
On August 26, 2009, 4Gas wrote a letter to the ministry, informing it that there were four suppliers in the market which could provide the LNG. It named BP of the UK, Woodside of Australia, Mitsubishi and GDF Suez of France. However, when the govt entered into negotiations, BP, Woodside and Mitsubishi were unable to commit to supply the required LNG quantity.
Lashari said there was a need to understand why the LNG import project was so crucial. It was actually the most critical issue on the energy scene of Pakistan. “Today, we don’t have any other source to supplement us in the future, as coal, hydro and nuclear are farfetched things”.
He said the government would not spend any money. It would only provide land for setting up the terminal. The investment would be of 4Gas and GDF Suez. The SSGCL would purchase the gas to supply it for power generation.
Lashari said the other short-term LNG import project of Vitol and Fauji Foundation has not been finalised yet. “It is up to the ECC to decide about it.” He said if the ECC cleared it then the ministry would enter into negotiations with the party, as no conclusive talks were ever held with the consortium. He said that this short-term project was for five years and would facilitate 2 million tons of LNG import annually.
Published in the Express Tribune, July 23rd, 2010.
The controversy surrounding the multi-billion-dollar Liquefied Natural Gas (LNG) import contract will cause a whopping Rs18 billion loss as the gas is meant to replace costly furnace oil for power generation, said a top official on Thursday.
Petroleum and Natural Resources Secretary Kamran Lashari told The Express Tribune in an interview that unnecessary delay in the finalisation of Mashal LNG import project, which is designed to import 500mmcfd gas per day, was causing Rs3 billion or $35 million loss per month.
“We are largely dependent on furnace oil for electricity generation. Had the controversy not arisen, the project would have become operational by the end of 2011. Now it would be completed with a delay of at least six months,” said Lashari.
Under the Mashal LNG import project, Pakistan would import 3.5 million tons per annum LNG or 500 mmcfd gas per day that can generate 2,500 MW of electricity. The imported LNG will help lower the cost of generation by reducing reliance on expensive furnace oil.
The Economic Coordination Committee of the Cabinet, headed by then finance minister Shaukat Tarin, had approved the project on February 9, 2010. The ECC decided to award two separate contracts, one for LNG import to GDF Suez, a French company and the other to set up the terminal to 4Gas – a Dutch company.
However, in March a news story claimed that the deal, if signed, would cause a loss of $1 billion, as the ECC awarded the contract to the highest bidder. The Supreme Court took notice of the news and directed the government to reconsider the project and award one integrated contract to 4Gas Company for both LNG import and setting up of terminal.
However, a four-member negotiating committee had decided the bifurcation of the project into two after finding that 4Gas Company was not financially sound.
Because of the controversy, the government has taken a cautious approach and the ECC on July 20 referred the contract to the law ministry in order to be sure that the contract was in line with the SC directives.
Meanwhile, Lashari was of the view that, “We should keep national interest uppermost. It has not been established at any stage that there was a loss of even one dollar.”
The petroleum secretary said that the project would be signed within a month after ECC’s approval. This done, the government would issue a letter of award to the 4Gas company. From that stage to the commissioning of the project, it would take 24 to 28 months. Now, instead of completing at the end of 2011, the project would be commissioned by June 2012.
The secretary said that, in light of the Supreme Court decision, the gas supply would now be the responsibility of the 4Gas company. It would degasify the LNG and supply to the government. In case of delays or hiccups, the company would be liable to penalties.
4Gas had informed the government that it could only provide a terminal and the government may find another party for supply of gas. Now, the 4Gas company would sub-let the LNG import contract to GDG Suez.
On August 26, 2009, 4Gas wrote a letter to the ministry, informing it that there were four suppliers in the market which could provide the LNG. It named BP of the UK, Woodside of Australia, Mitsubishi and GDF Suez of France. However, when the govt entered into negotiations, BP, Woodside and Mitsubishi were unable to commit to supply the required LNG quantity.
Lashari said there was a need to understand why the LNG import project was so crucial. It was actually the most critical issue on the energy scene of Pakistan. “Today, we don’t have any other source to supplement us in the future, as coal, hydro and nuclear are farfetched things”.
He said the government would not spend any money. It would only provide land for setting up the terminal. The investment would be of 4Gas and GDF Suez. The SSGCL would purchase the gas to supply it for power generation.
Lashari said the other short-term LNG import project of Vitol and Fauji Foundation has not been finalised yet. “It is up to the ECC to decide about it.” He said if the ECC cleared it then the ministry would enter into negotiations with the party, as no conclusive talks were ever held with the consortium. He said that this short-term project was for five years and would facilitate 2 million tons of LNG import annually.
Published in the Express Tribune, July 23rd, 2010.