After opposition from the Law ministry, the apex economic decision making body on Friday could not decide the fate of the $1.4 billion Liquefied Natural Gas Services Terminal project, and referred it to Prime Minister Nawaz Sharif for approval.
Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the Cabinet had been convened to consider a proposal of awarding the contract of setting up a terminal for import of liquid natural gas (LNG) for a period of 15 years. Last Wednesday, the ECC had deferred the summary approval after the Law secretary disclosed that the Petroleum Ministry did not send a summary to his ministry.
The Ministry of Petroleum and Natural Resources had proposed to award the contract to Elengy Terminal Pakistan Limited (ETPL) – a company owned by the Engro Group. ETPL had been selected through a competitive process, during which the bid by Pakistan Gas Port Limited (PGPL) had been knocked out at the technical stage.
The Secretary Ministry of Law and Justice, Barrister Zafarullah Khan, questioned the authority of the ECC in taking decisions on matters which are purely commercial in nature, according to officials. He also highlighted that after the 18th Amendment in the constitution, the ECC cannot direct the Oil and Gas Regulatory Authority to give policy guidelines on any matter. Such powers rest with the prime minister, he told the ECC.
“In light of the detailed discussion, the ECC decided to approve the proposal in principle, subject to completion of all formalities as indicated by the Law Division and thereafter approval of the Prime Minister,” said a statement issued by the Ministry of Finance.
It added that the Law secretary informed the ECC that in light of the 18th Amendment, Article 90(1) of the constitution lays down that the Executive Authority of the Federation shall be exercised in the name of the President by the federal government, consisting of the Prime Minister and the federal ministers, which will act through the Prime Minister.
Since 2006, Pakistan has been making unsuccessful attempts to import LNG. The country has already entered into negotiations with Qatar to import LNG but before that it needs to set up a terminal. Sui Southern Gas Company (SSGC) and ETPL have already negotiated LNG Services Agreement under which the SSGC will pay $0.66 per million British thermal unit charges to the ETPL. The contract will be awarded for a period of 15 years and on the basis of ensured import volumes, the country will pay $1.4 billion to the company in 15 years, roughly $93 million per annum.
The company is supposed to set up the terminal within 335 days of the signing of the contract. It will have to pay $150,000 per day penalty if it fails to meet the deadline, according to an official of the company. However, if the government fails to bring supplies after the completion of the project, it will have to pay the ETPL the guaranteed amount.
Regarding the approval of the contract as agreed by SSGC and ETPL, the Secretary Law opined that it was a commercial contract between the two commercial entities and their respective Board of Directors are competent enough to grant approval in respect of LNG Service Agreement.
After the Law secretary’s opinion, the ECC did not agree with the Petroleum secretary’s plea to approve the project as it was of paramount importance to meet the urgent energy needs of the country.
Published in The Express Tribune, March 1st, 2014.
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