LNG terminal: Hefty payment as capacity charges sparks worries

ECC asks PSO to conduct due diligence before issuing letter of comfort.

ISLAMABAD:

The payment of millions of dollars in capacity charges to Engro, which has won a liquefied natural gas (LNG) terminal services contract, has sparked concerns among economic decision-makers, who ask Pakistan State Oil (PSO) to carry out due diligence before issuing letter of comfort for gas import, sources say.

Elengy Terminal Pakistan Limited (ETPL), a wholly owned subsidiary of Engro Corporation, has won the bid for LNG terminal services and quoted a tolling fee of 60 US cents per million British thermal units (mmbtu).

In the first phase, the government plans to import 200 million cubic feet of LNG per day (mmcfd) from November this year and increase the quantity to 400 mmcfd in 2015.

Sources told The Express Tribune that the Economic Coordination Committee (ECC), in a meeting on February 28, was upset to know that state-owned PSO would issue a letter of comfort to Sui Southern Gas Company (SSGC) and pay millions of dollars in capacity charges even it was unable to import LNG from Qatar.

The economic managers observed that the government would have to pay this huge amount, putting a burden on taxpayers, even if imports were not made.

“The federal government controls PSO, so proposed letter of comfort to be issued by PSO would have a bearing on taxpayer money. Therefore, before issuing the letter, PSO is to carry out due diligence,” the ECC said.

A senior government official, who attended the meeting, said the board of directors of SSGC had approved award of the LNG terminal contract to ETPL subject to issuance of a letter of comfort by PSO so that SSGC could not face capacity payment in case of failure to import LNG.

The ECC members noted that the LNG services agreement was a commercial contract between two entities – SSGC and ETPL – and their boards of directors were fully competent to grant approval in respect of the accord.

They termed the project important keeping in view a significant decline in natural gas production in the country because of fast depleting reserves.

They were of the view that the project should be fast-tracked after completion of due process in light of advice of the Law, Justice and Human Rights Division and subsequent approval of prime minister.

The Law Division pointed out that Section 21 of Ogra Ordinance 2002 empowered the federal government to issue policy guidelines to Ogra. After the 18th Amendment to the Constitution, the definition of the term “federal government” has been changed and the federal government or the prime minister could give proposed policy guidelines directly or through a federal minister.

Published in The Express Tribune, March 5^th, 2014.

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