WITH a seemingly unfavourable environment for the implementation of gas-import pipeline projects, the government seems to be focusing on liquefied natural gas imports to meet future energy needs.

Over the next few years, the government plans to purchase up to 3.6bn cubic feet per day (bcfd) LNG from abroad — close to the current domestic gas supplies of around 4bcfd. The present gas shortfall of over 2bcfd keeps on rising, not only affecting citizens and businesses but also choking economic growth.

Both the transnational gas-import pipeline projects — from Turkmenistan (for 1,325mmcfd) and from Iran (750mmcfd) — are not picking up pace owing to security concerns on the pipeline’s route (from Turkmenistan) and due to international sanctions on Iran.

The government has sidelined the two gas utilities from the execution of two major gas pipelines and handed them over to a special purpose vehicle, which has no expertise in handling pipeline issues

Hence, all the more dependence on LNG imports. The first LNG import, contractually due in a few days, is facing last-minute teething problems due to the unpreparedness of the concerned stakeholders — the ministries of petroleum, power and finance and domestic companies like PSO, SSGCL, SNGPL and the Port Qasim Authority.

Notwithstanding this, the SSGCL is working on another terminal to bring in a further 400-600mmcfd LNG by the second quarter of 2016. And a third LNG terminal is being planned for yet another 400-600mmcfd gas, targeted for completion by March 2017 — bringing the total to up to 1.8bcfd.

On top of that, three private sector LNG terminals are also expected to come on line over the next two years to bring an additional 1.8bcfd of LNG, taking the total to about 3.6bcfd. All of this will need a massive restructuring of gas tariffs to include the weighted average cost of gas.

With this in mind, the gas companies will have to work on additional pipeline infrastructure projects on a fast-track basis to transport this volume. Both gas companies are augmenting their internal distribution networks currently spread over 136,560km, with transmission lines of 11,230km.

Therefore, at least two major 42-48 inch diameter pipelines are being pursued. The project for building a 710km pipeline from Gwadar port to Nawabshah in Sindh, along with the terminal, has been handed over to the China Petroleum Pipelines Bureau on a government-to-government (G2G) basis, involving a cost of about $1.5bn.

This project is designed keeping in mind the possible ease of Western sanctions against Iran so that about 70km of the pipeline from Gwadar to the Iranian border could be linked for importing Iranian gas. The two sides have already agreed to delay gas trade for about two years.

The more crucial project — an 1,100km pipeline from Karachi to Lahore — is being contemplated to be awarded to Rostec Global Resources. Rostec was nominated by the Russian government for the $2.2bn G2G deal on a build-own-operate-transfer (BOOT) or build-operate-transfer (BOT) basis. The actual cost and terms of financing have yet to be finalised.

This pipeline will be able to transport possible Iranian gas or LNG from Nawabshah and the Turkmenistan gas from Multan, in addition to LNG supplies from the Karachi terminals.

Interestingly, however, the government has sidelined the two gas utilities from the execution of both these pipelines and handed them over to a special purpose vehicle, Interestate Gas Company (ISGS). It was set up specifically to arrange natural gas imports and has no expertise in handling pipeline issues.

The SNGPL and the SSGCL would only liaise with the ISGC and provide land for the project sites, including the right of way, and hand it over to the BOOT or BOT contractor. The pipeline would have two major crossings over the Indus and Sutlej rivers and also pass through 90 major roads, 43 canals, 1,000 streams, waterways and small roads and six railway tracks.

This 1,100km North-South pipeline will also feed regasified liquefied natural gas (RLNG) to the proposed gas-fired power plants of 3,600MW capacity in northern Pakistan — specifically around the Lahore Load Centre, as approved by the Cabinet Committee on Energy led by Prime Minister Nawaz Sharif.

Meanwhile, to address concerns of RLNG-based power projects in Punjab over the circular debt, the investors would be entitled to delayed interest payments of three-month Karachi Interbank Offered Rate plus 200 basis points.

In case the plant is not available for dispatch due to non-availability of fuel at site owing solely to delayed payments, it will be entitled to claim capacity charges and the rate of the equity component would be reduced by an agreed percentage.

Similarly, for LNG-based power projects, the project company would be required to establish standby letters of credit and revolving letters of credit in favour of the RLNG supplier.

The laws of England would be applicable for foreign lenders of the projects. These will contain an indemnity clause, stating to the effect that if any agreement or government guarantee becomes unenforceable, illegal or invalid due to a change in the law, the federal government would indemnify the project company and the lenders for any cost, loss or liability.

The companies will be completely exempted from income tax, turnover tax, withholding tax on imports and would be subjected to a 5pc customs duty on import of plant and equipment not manufactured locally.

Published in Dawn, Economic & Business, March 23rd, 2015

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