LNG imports: Govt to take payment guarantees from IPPs

Qatar demands opening of standby letter of credit before gas supply.

ISLAMABAD: The government has decided to take unconditional payment guarantees from independent power producers (IPPs) in an effort to push ahead with a multibillion-dollar liquefied natural gas (LNG) trade deal with Qatar.

The decision was taken in a meeting chaired by Petroleum and Natural Resources Minister Shahid Khaqan Abbasi here on Tuesday.

According to officials, the IPPs are reluctant to open an unconditional standby letter of credit - a key demand of Qatar for a smooth LNG supply chain.

The IPPs are seeking to link the letter of credit with the clearance of their outstanding bills by the Central Power Purchasing Agency, but the government insists on an unconditional letter of credit to step up work on bringing LNG from Qatar.

Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) are ready to provide back-to-back guarantees but the IPPs are a hurdle in their way.

“Now, it has been decided that the IPPs will be asked to provide an unconditional letter of credit,” an official said, adding gas distribution companies would also take up the matter in meetings of their boards.

PSO and the gas companies had signed an initial tripartite agreement for LNG supply and distribution, but they were still to give it a final stamp of approval.

Officials point out that seeking payment guarantees to avoid default is in line with international practices. Qatar is concerned about payments as Pakistan’s entire energy chain has been plagued by the circular debt for years.

The Ministry of Finance is also a major stakeholder in the payment mechanism as it will directly pay to PSO for LNG imports from Qatar.

According to officials, negotiations between Pakistan and Qatar on LNG import - in a government-to-government arrangement - have dragged on over delay in finalising the mode of payment and issuance of standby letter of credit by the IPPs. At present, PSO is bringing LNG through spot purchases.

Power companies could utilise the imported gas to fill the demand-supply gap and the unutilised fuel could be diverted to the four IPPs in Lahore, Kot Addu Power Company and Fauji Kabirwala Power Company.

Published in The Express Tribune, July 1^st, 2015.

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