Multibillion dollar LNG import project hits snags

Finance ministry unable to provide sovereign guarantees to LNG suppliers.

ISLAMABAD:

A multibillion dollar LNG import project may end up stuck in the mire, as the finance ministry has refused on Wednesday to provide sovereign guarantees to LNG suppliers due to financial constraints. A committee tasked with handling the government-backed, integrated LNG import project was informed that suppliers want sovereign guarantees on purchase agreements, and that it was not possible to proceed without that provision.

The ECC, in a meeting on May 15, 2012, had decided to constitute a sub-committee to look into the modalities of the LNG import project. According to sources, the high-powered committee failed to reach a consensus due to the concerns of different stakeholders.

A sub-committee of the Economic Coordination Committee (ECC) met in the offices of the Ministry of Petroleum under the chairmanship of Minister for Information Technology Raja Pervez Ashraf to deliberate modalities for procurement of LNG from the international market. The meeting was also attended by Minister for Petroleum and Natural Resources Dr Asim Hussain, Special Advisor to the Prime Minister on Water Resources Kamal Majidullah, Deputy Chairman Planning Commission Nadeem-ul-Haq, Secretary Petroleum and Natural Resources Muhammad Ejaz Chaudhry, Secretary Law and Justice Yasmin Abbasey, Chairman Ogra Saeed Ahmed Khan, representatives of the Finance Division, and other senior officers of the Ministry of Petroleum and Natural Resources.

One of the participants told The Express Tribune that the finance ministry had communicated in an earlier meeting of the ECC that it could not extend sovereign guarantees to LNG suppliers due to financial constraints. “The representative of the finance ministry reiterated its earlier stance in the meeting of the sub-committee, and again refused to extend sovereign guarantees to LNG suppliers,” the source added.

Petroleum Minister Dr Asim Hussain, on the other hand, said the Finance Secretary had agreed to the extension of sovereign guarantees to LNG suppliers.

Furthermore, within the same context, the petroleum ministry conveyed that it still wishes to choose two bidders through a tender for the award of the LNG contract; which is against the spirit of the Public Procurement Regulatory Authority Rules 2004.

During the meeting, the Ogra representative opposed a condition that gas prices under the project be revised after a ten-year period, and the LNG deal itself be revisited after fifteen years. Instead, he advocated that, keeping consumers’ interests in mind, gas price revision be undertaken every five years, and the LNG deal be revisited after a ten year period.

According to a statement, a detailed briefing by the Petroleum Secretary was provided to members of the ECC sub-committee. Notwithstanding the finance ministry’s refusal to extend sovereign guarantees, the committee has decided to postpone a final announcement on the LNG import project, and proceed – tentatively – via a competitive bidding process with a focus to ensure availability of LNG for the power generation sector. The sub-committee has decided that the recommendations will be finalised on Monday (May 21, 2012), after revisiting and addressing concerns of all the stakeholders.

Published in The Express Tribune, May 17^th, 2012.