LNG import: SSGC, ECC likely to award $1.4b contract today

Engro will set up handling facility, bring first consignment by November.

ISLAMABAD:

The board of directors of Sui Southern Gas Company (SSGC) is set to meet today (Tuesday) and give its seal of approval to a draft agreement for liquefied natural gas (LNG) services with Engro Vopak Terminal Limited (EVTL), which will set up a handling facility and initially import 200 million cubic feet per day.

Later in the day, the Economic Coordination Committee (ECC) of the cabinet will take up the project and is likely to give the $1.4 billion contract to EVTL to ensure first flow of LNG in November this year.



According to sources, EVTL and SSGC have finalised the draft agreement for building an LNG handling facility at Engro’s existing terminal at Port Qasim. After the board’s approval, the draft would be sent to the ECC for the final go-ahead.

Officials said EVTL would provide the handling facility with tolling charges and later increase imports to 400 mmcfd from 200 mmcfd in the beginning.

Talking to The Express Tribune, an SSGC spokesman acknowledged that the company’s board would meet on Tuesday to consider the award of LNG services contract to EVTL. He did not elaborate.

However, another project, called the LNG retrofit facility which had to be undertaken by SSGC’s subsidiary Progas, has been put on hold.

Dutch firm 4Gas had won the bid for the retrofit facility at tolling charges of $0.80 per million British thermal units (mmbtu). EVTL later submitted a bid, offering a lower price and prompting the government to put aside the retrofit project for the time being.

“Under the retrofit project, SSGC would have received five cents per mmbtu from tolling charges without making any investment,” an official commented.

According to tender documents, any company, its affiliate or agent debarred from contracts by the World Bank would be disqualified in the tender for LNG services invited by Inter State Gas Systems (ISGS).

EVTL had submitted the offer for LNG services in partnership with China Harbour Engineering Company, a subsidiary of China Communications Construction Company, which has been blacklisted by the World Bank until January 2017.

However, the government cleared the company, saying that the project was not being funded by the World Bank, therefore, EVTL could not be disqualified. However, “a question arises why such clause was made part of the tender when it could not be implemented,” an official asked.

When approached, EVTL CEO Sheikh Imran said the Chinese company was their contractor and not a joint venture partner, meaning the World Bank clause did not apply to the project.

He said they had offered a tolling fee of $0.66 per mmbtu – the lowest in the region – and had also taken the responsibility of laying a 23km pipeline to pump gas into the SSGC system. They have also given an unlimited guarantee.

“We have a six-month guarantee for letters of credit and no sovereign guarantee of the government in this contract,” he said, adding the contract would be for 15 years with an investment of $1.4 billion.”

Qatar talks

Qatar has offered to revise the price down for export of LNG to Pakistan in a proposed government-to-government arrangement that will help ease energy shortages.

The two sides would meet in Doha on February 8 to discuss the price and volume of gas to be shipped to Pakistan. Petroleum Minister Shahid Khaqan Abbasi will lead Pakistani delegation during the deliberations.

Earlier, during negotiations with officials of the previous PPP government, Doha had offered to export LNG at a price equivalent to 14.7% of Brent crude oil rate when it was hovering around $110 per barrel in the international market.

Later, Qatar pushed the price down to $17.437 per mmbtu, a 0.5% discount over the previous rate of $18.002 for the 20-year lifetime of the project.

Lakhra plant, PIA affairs

The ECC, in its meeting, may also approve privatisation of Lakhra power plant and take up matters pertaining to Pakistan International Airlines (PIA).

It is expected to allow purchase of 600,000 tons of sugar from the mills at a cost of Rs32.04 billion, of which Rs1.12 billion will be financial charges.

Published in The Express Tribune, January 28^th, 2014.

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