Hanging in the balance: Despite pressure, Cabinet delays decision on LNG imports

Discounted price quoted by Qatar higher than offered by private companies.

ISLAMABAD:

The Cabinet avoided taking a decision on the revised prices for liquefied natural gas (LNG) imports offered by Qatar and left it for the upcoming government to decide as the incumbent administration’s constitutional tenure is about to expire in a couple of days.

The new price offered by Qatari government was still higher than the prices quoted by the private parties, if capital costs and other charges were included.

Foreign Minister Hina Rabbani Khar had played a key role in reviving the LNG import project with Qatar on a government-to-government basis, but due to higher prices the cabinet hesitated according its stamp of approval.

Sources told The Express Tribune that the Cabinet had agreed, in principle, to revive the LNG import project with Qatar.

“The Cabinet has left it for the next government to negotiate the deal with Qatar,” sources said.

According to the documents available with The Express Tribune, the proposal was submitted to the decision-making body detailing the deal, where the new price was quoted at $17.437 per million British thermal unit (mmbtu), a 0.5% discount from the previous price of $18.002 per mmbtu, which amounts to $1 billion in savings over the 20-year life of the project. The price was exclusive of the capital cost of LNG terminal and its charges, import expenses, re-gasification, wastage and shipping costs. The additional charges will add about $2.084 per mmbtu to the quoted price.

If all charges are included, then the gas will cost $19.521 per mmbtu to import from Qatar, the Cabinet was informed. Pakistan will have to spend $200 million to lay infrastructure for handling the LNG imports from Qatar, resulting in higher prices for the final product.

On Wednesday, the Cabinet was requested to approve the prices, to which it avoided giving a nod due to the project costing higher than what was offered by the private parties to import 400 million cubic feet per day of LNG. The project had hit a roadblock after the Supreme Court took a suo motu notice on March 9. The case is adjourned until March 18 for next hearing.

The petroleum ministry informed the Cabinet that the Sui Southern Gas Company (SSGC) and its foreign adviser QED Consulting, a London-based firm, had sought proposals for the supply of 400mmcfd of LNG under the second phase.

Pakistan Gas Port quoted $17.7074 per mmbtu and Global Energy International quoted $18.16 per mmbtu as bids for the project. However, Engro’s wholly-owned subsidiary Elengy Terminal Pakistan submitted a formula instead of a base price. The prices include the cost of setting up a LNG terminal to handle imports.

QED Consulting said that the bids submitted by Pakistan Gas Port and Global Energy International were in format laid down in the request for proposal, whereas the price quoted by Elengy Terminal was not in accordance with the RFP and was declared non-compliant.

“If the government strikes the LNG import deal with Qatar at the revised price, Pakistan will be paying $3.5 billion extra than it will pay to the private parties based on the price difference,” sources said.

Minister for Foreign Affairs Hina Rabbani Khar recently visited Qatar and notified the Cabinet about the meeting with the Ameer, prime minister and minister for energy and industry of the State of Qatar.

The foreign minister was of the view that the offer looked reasonable and had advised the Cabinet to approve, the petroleum ministry said.

Previously, Pakistan had signed a memorandum of understanding with Qatar to import 3.5 million tons per annum, which was revised to two million tons in the revised offer.

Published in The Express Tribune, March 15^th, 2013.