Govt on back foot after glitches in LNG import

Decides not to penalise importers for failing to uphold commitments.

Zafar Bhutta August 16, 2012

ISLAMABAD: The government has on Wednesday decided not to cancel the pipeline capacity allocation of three major LNG importers, after they defaulted on an agreement on completing and submitting financial documents within a stipulated six-month period.

According to the terms and conditions, the LNG importers were to submit a firm commitment and furnish a performance guarantee of $10 million – encashable in Pakistan – within 90 days of capacity allocation. They had to provide documents regarding financial arrangements and Head of Agreements with LNG suppliers and end buyers by the end of April of this year.

Upon default, the government was to receive reparation from the importers as penalty for failing to uphold their commitment: but the penalty has been foregone for now by the government.

A decision to this effect came in a high level meeting held in the Ministry of Petroleum and Natural Resources. The meeting was attended by representatives of the Oil and Gas Regulatory Authority (Ogra), the finance ministry and the Planning Commission.

“The meeting has decided to extend the capacity allocation of LNG developers,” an official said; adding that the exact period of extension is yet to be decided.

Ogra has also given conditional licences for construction of LNG terminals to these developers; the latter are to meet all specified conditions within a year.

“The government reduced the performance guarantee, under pressure from LNG developers, from $10 million to $5 million. But even then, the latter failed to complete their financial close relating to capacity allocation within the agreed time,” an official said.

Ogra had allocated pipeline capacity to three LNG developers in October 2011. These include the Turkish firm Global Energy, and Pakistani Gas Port and Engro Corporation. The three were to use the pipeline network of state-run gas distribution companies for the transport of imported LNG to consumers.

At the time of granting capacity allocation, Ogra had warned the LNG developers that they face cancellation of capacity and encashment of their performance guarantee if they fail to meet their commitment within the scheduled time.

Ogra had allocated capacity to the three importers for the supply of 1.4 billion cubic feet per day (bcfd) of gas through the Sui Southern Gas Company and Sui Northern Gas Pipelines Limited network.  Global Energy was allocated pipeline capacity for 500 million cubic feet per day (mmcfd), Pakistan Gas Port received capacity for 400 mmcfd, and Engro for 500 mmcfd.

At present, SSGC has the capacity to transport only 500 mmcfd of LNG. SSGC and SNGPL were supposed to invest $1.2-1.4 billion in new pipelines in order to create room for the LNG suppliers.

Global Energy had committed to bring in its first consignment by the end of June 2012, Engro by December 2012, while Gas Port was to supply LNG to the network in the first quarter of 2013.

LNG importers blame Ogra for the delay in imports, claiming the regulator did not get Third Party Access rules notified in time, which delayed the process of their financial close.

During the meeting, it was also decided that the committee overseeing LNG projects would be expanded; including representatives of Independent Power Plants (IPPs) and the CNG industry for their inputs.

Published in The Express Tribune, August 16th, 2012.