ISLAMABAD: The federal government and its three major entities — PSO, SSGCL and SNGPL — could not conclude a tripartite agreement required for import, sale and payment of liquefied natural gas (LNG) despite weeklong marathon consultations.

A senior government official told Dawn that the petroleum minister had asked the managements of Pakistan State Oil (PSO), Sui Southern Gas Company Limited (SSGCL), Sui Northern Gas Pipelines Limited (SNGPL) and Inter-State Gas Company Limited (ISGCL) to stay put in the capital to resolve their issues regarding LNG imports due early next month.

A three-member team comprising acting managing director PSO Shahid Islam, managing director ISGCL Mobin Solat and PSO’s Babar Chaudhry led different rounds of talks while the gas companies were represented by their deputy managing directors and comparatively junior officials.

All the parties reached Islamabad on Monday and remained under one roof until Thursday evening but could not resolve critical points regarding who would be responsible for opening standby letters of credit worth around $200 million, revolving letter of credit for initial six LNG cargoes of around $180 million and payment mechanism.

Informed sources said PSO, which was responsible for importing the LNG, wanted the two gas utilities, SSGCL and SNGPL, to pay for the imports but the gas companies expressed their inability because of their weak financial muscle. The two gas companies believed that the decision to involve PSO in the LNG import was because of its strong financial position.

Also, the SNGPL said it did not have about Rs6 billion to pay for first two LNG cargoes while the SSGCL did not agree to pay for gas sales in SNGPL’s network and would not require LNG at least in the first year.

Similarly, all three entities wanted net profit of five per cent each on import and sale of LNG after setting aside all expenses. This meant the delivered gas price at the distribution stage to the end consumer would go beyond $12 per mmBtu (million British thermal units) even if it was finalised at $7 per mmBtu with the supplier, given $3 per unit tolling charge, $1 per unit unaccounted for gas (UFG) loss and 5pc each net profits of the three companies.

It was informed that the cabinet committee on energy led by the prime minister had decided to ensure payments to independent power producers (IPPs) directly by the Ministry of Finance for ensuring payments for LNG but IPPs had not yet agreed to the mechanism.

The sources said the CNG sector had offered to open letters of credit for a few imports but had not yet finalised arrangements with the SNGPL and have not installed online billing, meters and load balancing which also required amendments in the Third Party Access (TPA) rules.

Therefore, the SNGPL had not issued no-objection certificate (NoC) to the CNG sector, to apply for pipeline capacity allocation from the Oil and Gas Regulatory Authority (Ogra).

It was also pointed out that there will still be some unresolved issues between the Port Qasim Authority (PQA) and the terminal operators Engro Elengy regarding ‘mechanical completion’ of the floating terminal and regasification unit. Likewise, two commissioning cargoes were also not arranged yet for commercial testing.

A fresh issue is reported to have emerged between the two gas companies. The SSGCL wanted the LNG supply agreement (LSA) to be signed directly between PSO and SNGPL for 10 years instead of being part of it on the ground that it did not need gas in the first year. The SNGPL believed that even if the SSGCL was to be roped in in the second year, it should be part of the novations for 10 years among the three parties.

Published in Dawn, February 27th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play