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ISLAMABAD: The government on Friday approved fast-track setting up of smaller Liquefied Natural Gas (LNG) based power projects of 1,000 megawatts and legally empowered Pakistan State Oil (PSO) to sell imported LNG to gas utilities and other consumers without direct agreement with terminal operator.
These decisions were taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Finance Minister Ishaq Dar. The committee also approved two-month salaries to the employees of Pakistan Steel Mills (PSM) and provision of 124,000 tonnes of wheat worth Rs4.977 billion to temporary displaced persons through World Food Programme (WFP).
The ECC also decided to set up regasified LNG (RLNG) based small power projects of 100-250MW with a combined capacity of 1,000MW through competitive private investment that could start commercial production by March 2017. The projects would be based on a build, own and operate (BOO) basis.
PSO allowed to sell imported liquefied natural gas
Under the plan, the government would offer these projects for international competitive bidding to the private investors on the basis of discount on an upfront tariff approved by the National Electric Power Regulatory Authority (Nepra).
A pre-planned framework and standard security documents were also approved so that private investors could finalise contractual details under a standard template to avoid delays in negotiations and separate documentations.
The plan was prepared by ministers for finance, water and power and petroleum in view of difficulties in finalising about 1,000MW of small gas-based plants originally planned at gas fields and were expected to reduce power shortages before the next general elections.
The proposed plants will replace some of the old plants of the public sector generation companies (Gencos) and some others would be located near the existing transmission system and would be supplied RLNG through gas swap arrangements with two gas utilities — Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL).
The prospective investors would be asked to offer discount on upfront tariff for gas/RLNG based combined cycle power plants announced by Nepra in April 2015 and those offering lowest tariff and earliest completion deadline would be selected and asked to start construction immediately. They would, nevertheless, be required to start open cycle operations by March 2017 and complete combined cycle by January 2017.
LNG SUPPLY CHAIN: The ECC allowed PSO earlier this month to sign a 15-year LNG sales purchase agreement with Qatargas-2 for supply of 1.5 million tonnes per year of LNG at a price of 13.37 per cent of Brent crude oil, involving a total amount of about $15bn. But the mismanagement of LNG import project had exposed some critical legal hitches. To remove them, the ECC had constituted a committee of secretaries of law, finance and petroleum ministries.
The ECC had taken up the issue in its meeting on Thursday but had deferred a decision because of lack of clarity in the petroleum ministry’s summary. It was pointed out that despite a long drawn process, the PSO was not legally empowered to sell RLNG to gas utilities or third-party consumers under the existing 2011 LNG policy and related framework.
It was reported that since SSGCL had already entered into an LNG Services Agreement for receiving, storage and regasification of LNG with Engro terminal, the PSO should not be required to enter into an agreement with Engro terminal and could sell the LNG and RLNG to gas utilities or third-party consumers.
The secretaries committee with input from legal experts said that this was illegal and involved two separate matters. The committee held that under the LNG policy of 2011, PSO as LNG buyer was required to enter into an agreement with terminal operator. Because PSO did not have an agreement with terminal operator, the ECC should allow amendment to enable the state-owned oil company to utilise the terminal services under SSGCL’s agreement with Engro terminal through amendment in 2011 LNG policy.
Another lacunae was also pointed out that PSO could sell LNG to gas utilities before terminal but it could not sell RLNG (beyond Engro terminal) to utilities or third-party consumers because it did not have a licence for sale of RLNG.
Therefore, an amendment was approved in LNG Policy 2011 that “the LNG buyer would enter into an agreement with the LNG terminal operator for the provision of LNG receiving, storage and regasification services at its terminal under a tolling agreement provided that a public sector organisation so designated by the government shall be exempt from this requirement”.
The amendment in the relevant provision of the LNG Policy 2011 would ease out the technical hurdles in LNG supply chain for smooth supply of the product, an official brief statement said.
On proposal of Ministry of Ports and Shipping regarding grant of EPC contracts to the firms nominated by the Chinese government without competitive bidding as required under Rule 5 of Public Procurement Rules 2004, the ECC formed committee to examine the applicability of Rule 5. The ministry had sought award of $140m contract to a Chinese firm for Eastbay Expressway project without bidding.
Published in Dawn, January 30th, 2016
