Private company blocked from importing 20pc cheaper LNG

Published April 15, 2015
Informed sources told Dawn the Pakistan State Oil (PSO) did not have an LNG marketing licence but it had not only imported but was selling the product to various consumers. — APP/file
Informed sources told Dawn the Pakistan State Oil (PSO) did not have an LNG marketing licence but it had not only imported but was selling the product to various consumers. — APP/file

ISLAMABAD: Amid legal vacuum surrounding the sale of around 140,000 tonnes of imported liquefied natural gas (LNG) to a few bulk consumers, a private company’s bid to arrange import of 20 per cent cheaper commodity is reported to have been blocked.

Informed sources told Dawn the Pakistan State Oil (PSO) did not have an LNG marketing licence but it had not only imported but was selling the product to various consumers, including fertiliser plants, power plants and gas companies.

“This is illegal,” said a former petroleum secretary.

A senior government official said the CNG industry represented by Universal Gas Company had struck a deal with an LNG supplier at less than $7 per million British thermal units (mmbtu) but it was not given clearance by the government and asked to route through PSO. “The final price differential between LNG imported by PSO and the CNG sector amounted to more than $2.5 per mmbtu,” said the official.

The LNG policy was approved in 2011 which has neither been amended nor suspended so far, but the consumers of regasified LNG (RLNG) were under pressure to import LNG through PSO in violation of section 10 of the policy. This strangely results into 45pc price build-up of RLNG in the shape of charges and profits of domestic entities.

An official of a fertiliser company said that even though the Sui Northern Gas Pipelines Limited (SNGPL) was providing domestic natural gas to Pak-Arab Fertiliser, which had enabled first LNG cargo by providing letter of credit, the invoices for RLNG to Pak-Arab were issued directly by the Sui Southern Gas Company Limited (SSGC) even though the Multan-based fertiliser plant was not a consumer of SSGC. This is also a legal issue that would need to be covered post-facto by the Oil and Gas Regulatory Authority (Ogra) or the cabinet.

In fact, the imported RLNG belonged to the Pak-Arab Fertiliser which paid for it but did not get full quantities as it was partially diverted by PSO to other consumers, for some time to Dawood Agritech and some IPPs. This is not allowed under Third Party Access (TPA) rules for LNG.

A petroleum ministry official, who has worked on three major LNG import projects so far, told Dawn that the latest RLNG price at Karachi was comparatively higher than envisaged under the two previous import attempts.

He said that first cargo’s RLNG price at Karachi has worked out at 17.56pc of the Brent crude. The Brent price varied between $57-60 per barrel over the last few days and RLNG price at Karachi has been set at $10.42 per mmbtu and $14.2 per mmbtu at power plant’s gate.

In contrast, the RLNG price of 4Gas, which became a victim to court cases during early days of the PPP government, had averaged 12.5pc of Brent. Another bid that fell victim to competing bidders — Gasport, Global and Engro — and then struck down again by the courts at the fag end of PPP tenure had also priced RLNG at Karachi at 13.9pc of Brent.

The official said the price of light sulphur furnace oil (LSFO) price for Kot Addu Thermal Power Company, according to regulatory approval, has stood at $10.85 per mmbtu against RLNG’s estimated price of $14.3 per mmbtu. This proved that the imported RLNG was costlier than furnace oil.

As if it were not enough, the RLNG price would further go up in view of a surprise decision of the petroleum ministry and PSO to offload Engro’s Floating Storage and Regasification Unit (FSRU) swiftly and use it as an LNG carrier to go back and bring another LNG cargo. This would result in eight days of capacity payments at the rate of $272,000 per day along with 3-4 times higher transportation cost (compared to LNG ship) to the FSRU even though it would not process LNG to become part of the price.

The sources said that the government was now trying to get out of these legal complexities by allowing a group of private investors to set up a special-purpose vehicle (SPV) to import LNG through spot purchases.

The group comprised a leading industrialist-cum-banker and a broker-turned-industrialist having directorships on the board of directors of gas companies that would have influence over LNG import, its distribution and partly consumption but the higher costs would be shared by all the consumers at the end of the day.

Published in Dawn, April 15th, 2015

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