Verdict, delivered: ECC scraps $25 billion LNG import project – again

Gives gas utilities sweeping powers to negotiate with buyers.

ISLAMABAD:

The federal government has rejected all bids for a $25 billion Liquefied Natural Gas import project – thereby postponing its execution for the second time in less than three years.

The Economic Coordination Committee (ECC) of the Cabinet took the decision after it found that two out of three bids were in violation of the Public Procurement Regulatory Authority (PPRA) Rules of 2004.

Three bidders – Turkish firm Global Energy International, the Consortium of Gasport, and Elengy (an Engro consortium) – had submitted bids for the 15-year LNG import project. Global Energy had submitted a bid bond with a small variation in the required amount due to the exchange rate, which was found in violation of PPRA rules. On the other hand, Gasport submitted bids after the bid closing date. Instead of rejecting the Gasport’s late bid, the Sui Southern Gas Company had accepted the tender in contravention of the PPRA rules. The Engro-led consortium surfaced as the only qualified bidder.

A subcommittee of the ECC recommended to the ECC that it should either accept all the bids or reject all proposals and invite fresh ones.

While taking the decision, the ECC also constituted a panel that will suggest amendments to PPRA rules, aimed apparently to facilitate the approval of the project in the future. However, sources said some cabinet members still wanted to import the gas by simply negotiating the deal and bypassing all mechanisms that ensure transparency. Their insistence raised concerns of under-the-table dealing in the award of the multibillion dollars contract.

This is the second time that the government has failed in moving ahead with the project, which was envisaged to help overcome gas shortages in the power sector. Earlier, the Mashal LNG import project had to be scrapped due to reports of losses.

While commenting on the ECC’s decision, Adviser to the Prime Minister on Petroleum and Natural Resources Dr Asim Hussain said that the LNG import project can never materialise unless the government amends the PPRA rules or sets them aside.

He said that another tender for the project was in process, which will be opened on February 15. He added that LNG can be imported only through direct negotiations.

Gas load management plan

The ECC also approved a fresh gas load management plan, while reprioritising the supply of gas to different sectors. It simultaneously granted sweeping powers to state-owned gas distribution companies, allowing them to ‘negotiate’ with buyers for priority rights on scarce resources.

According to an official handout, the ECC has given first priority to domestic and commercial sectors for gas supply. The power and general industries sectors will be accorded second and third priority respectively; whereas the cement sector has been moved up to fourth priority, while the CNG sector has been pushed down to the last priority. The ECC agreed that gas companies should be allowed to manage gas load on their own while observing the general priority order, including curtailment programmes.

The Ministry of Petroleum and Natural Resources had submitted the load management plan. In the backdrop of load-shedding in the power sector, the Ministry of Water and Power had requested enhanced gas supply to power plants on the Sui Northern Gas Pipelines system.

After legal experts termed the forced shutdown of the CNG sector illegal without the approval of the ECC, the petroleum ministry had recommended empowering gas utilities to decide who they wanted to sell the resource to.

The petroleum adviser said gas companies will be required to submit a fortnightly report to the ECC.

The ECC also gave its approval to the marginal and standard gas fields pricing criteria and guidelines, 2013, also submitted by the Ministry of Petroleum and Natural Resources. Marginal fields are the ones not considered economically viable due to lower expected revenues at the time of their development.

The ECC approved the setting up of the prices of marginal fields in accordance with the Petroleum Exploration and Production Policy, 2012, with an additional premium of $0.25 per million British thermal units for the three zones defined in the Petroleum Exploration and Production Policy.

Published in The Express Tribune, January 30^th, 2013.

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