ISLAMABAD: In a setback to the petroleum ministry, the new management of Sui Northern Gas Pipelines Limited (SNGPL) has declined to sign Gas Supply Agreement (GSA) with Government Power Projects (GPPs), saying it could not take unprecedented legal and financial risks under pressure.

A senior petroleum ministry official told Dawn the company wanted simultaneously signing of back-to-back agreements relating to supply of imported liquefied natural gas (LNG) with Pakistan State Oil (PSO) and Sui Southern Gas Company (SSGC) for risk sharing and financial obligations.

The official said the top brass of the ministry was trying to convince the SNGPL management, which it had inducted as an interim arrangement after sacking managing director Arif Hamid, to sign the gas supply agreements. But it wanted government’s instructions in writing to avoid accountability.

The SNGPL management had put on record that PSO and SSGCL were backing out of decisions taken at various meetings presided over by Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi earlier this week, the official added.

As a consequence of these legal hitches, the groundbreaking ceremony of LNG-based 1,200-megawatt Bhikki Power Project, earlier scheduled for this weekend, has been postponed for the time being, the official said.

“In view of the above, SNGPL hereby submits its position that it will not be able to sign the GSA unless both back-to-back agreements (tripartite agreement and reimbursement agreement) are also signed,” wrote SNGPL Managing Director Uzma Adil Khan to the petroleum ministry on Friday.

Ms Khan said outstanding issues were also earlier settled at a meeting on Sept 7 but both “PSO and SSGC continue not to subscribe to the decisions taken in various meetings” of the petroleum ministry.

This has resulted in extensive delay in reflection of these decisions in tripartite agreement (to be signed by PSO, SSGCL and SNGPL for various aspects of LNG supply and payments). This “could be a consequence of deliberate efforts of other stakeholders so that SNGPL ends up picking up all the obligations in the GSA”, the company said. The SNGPL did not agree to petroleum ministry’s assertion that draft GSA would become effective on signing of tripartite agreement and reimbursement agreement.

The company reiterated its stance that supply of LNG, its subsequent re-gasification into RLNG and its sale was one integrated transaction and all agreements including revised tripartite agreement, GSA and reimbursement agreement with central power purchase agency need to be finalised and initiated simultaneously.

It said the reimbursement agreement was crucial to the entire LNG transaction because it would ensure that risk of default in supplying gas was passed on to the relevant entity committing the default.

It said the SSGCL had agreed to procure additional re-gasification capacity form the Elengy terminal to meet requirement of GPPs but had backed out saying it could provide only 400mmcfd (million cubic feet per day) and additional capacity has to come from second terminal.

Likewise, PSO had also agreed to procure an additional 1.5 million tonnes of RLNG each year beyond 3m tonnes annually to cater for Independent Power Producers (IPPs) but now it was linking it to fresh government approvals.

As a consequence, the SNGPL could not sign GSA for supply of additional RLNG to GPPs or IPPs for which neither re-gasification capacity nor LNG quantities were clearly committed or agreements signed.

Published in Dawn, September 19th, 2015

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