ISLAMABAD: While the Planning Commission has opposed the leasing option of an LNG terminal at Gwadar, preferring an outright purchase of the facility for Rs41 billion, the Central Development Working Party (CDWP) led by Planning and Development Minister Ahsan Iqbal has set aside the commission’s objections, giving the petroleum ministry a go-ahead for leasing the Floating Storage and Re-gasification Unit (FSRU) for 25 years at an estimated cost of $120,000 per day.

The Executive Committee of the National Economic Council (Ecnec), which will take a final decision on the matter, is expected to take up the project along with the Planning Commission’s observations in its next meeting.

The Planning Commission confirmed that the overall project was viable on the basis of partial facts presented and offered a financial internal rate of return at 5.8pc.

The sponsors estimated terminal charges for the proposed FSRU at 36 cents per million British Thermal Unit (MMBTU) or Rs37.6 which was reasonably lower than 66 cents per MMBTU for Engro’s FSRU and 42 cents for the second terminal at Port Qasim.

Final decision will be taken at the coming Ecnec meeting

Under the project design, the seabed would be dredged to achieve a depth of 14.3 metres. The government will arrange around 39pc of the financing, while the remaining 61pc would be met with loans from Chinese banks. The project is expected to be ready by end of September 2018.

Initially, the project’s sponsors — Interstate Gas Company of the petroleum ministry — had sought approval for the Gwadar LNG terminal and Gwadar-to-Nawabshah pipeline project as an integrated project on an engineering procurement construction (EPC) or a build, own, operate and transfer (BOOT) basis.

During the planning stage, however, the sponsors proposed that the 700km pipeline be carried out on an EPC basis and the LNG terminal be constructed on a BOOT basis by the same contractor — a Chinese firm.

The Economic Coordination Committee (ECC) of the cabinet approved the proposal and the revised plan for the construction of the pipeline. This was approved by Ecnec on September 30, 2016, at an estimated cost of Rs203 billion, including a foreign exchange component of Rs135bn.

Now, the plan has been changed again. This time around, the sponsors want the construction of the LNG terminal section of the larger Gwadar-Nawabshah LNG terminal and pipeline project on an EPC basis. The overall project is a replacement or an alternative strategy to Iran-Pakistan pipeline, which has become uncertain owing to international sanctions on Iran. The ECC has thus allowed the import of 500-600 million cubic feet of LNG which could be enhanced to 1BCFD.

The capital cost of the terminal segment has been estimated at about $392 million, at a weighted average cost of capital at 5.29pc, including 4pc for foreign debt and 7.37pc for local contribution.

The Planning Commission has also objected to high margins claimed by the ISGC. “The estimated/proposed margin of ISGC of around Rs125 per million British Thermal Unit prima facie seems higher,” it said.

The commission also pointed out that a simple net present value (NPV) analysis assuming FSRU cost at $400 million, including all overheads and debt servicing, vis-à-vis the leasing cost of $120,000 per day revealed that the option was uneconomical.

It said that the NPV capex (capital expenditure) of the FSRU, if owned by the sponsors, would be $383.95 while operating expenditure (Opex) would be around $124.7, based on 350-day operations for 25 years.

On the other hand, the NPV of leased FSRU would be $536.6 with leasing at $100,000 per day.

The economic affairs division, on the other hand, suggested that the buyer’s credit of $282 million (almost 85pc of the EPC cost) be replaced with a soft loan because the buyer’s credit was costlier.

The LNG terminal segment would include the construction of two breakwaters, a jetty, subsea pipeline and its connection to the FSRU, a 7km spur pipeline and the FSRU itself on a 25-year lease.

Interestingly, a specialised company – the Pakistan LNG Terminal Limited – was created to handle LNG imports and terminal processing while the ISGC had a mandate to lay pipelines for imported gas. However, the terminal segment has also been given to the ISGC.

Published in Dawn, March 24th, 2017