AN effort appears to be afoot to build controversy around the LNG long-term supply contract that the government entered into with Qatar early last year. On Thursday, MNAs from the PPP questioned the price renegotiation clause, arguing that 10 years is too long a period to lock the price in for. Others argued that the price is too high and should be lower. A third line of questioning revolved around the purported secrecy of the agreement, which appears to be protected by a confidentiality clause that is standard in all LNG long-term supply contracts around the world. Each of these demands is problematic in its own way and those raising them should consider the possible consequences of their actions carefully.

A shorter time for price renegotiation may or may not be to Pakistan’s benefit. It is worth remembering that such a clause can be invoked by both parties — the seller and the buyer. When demand is high, such a clause is likely to be invoked by the seller, just like it was after 2004 or after the Fukushima disaster in 2011 when Japan became a major contractor of LNG in its push to move away from nuclear power. So shortening the time period till the next price renegotiation could just as likely work to Pakistan’s detriment if the global LNG market turns in the meantime. Those asking for a shorter time period should explain why they believe this will necessarily be to Pakistan’s benefit. Second, the price has been shared by the prime minister on numerous occasions, and those arguing that it is too high are basing their assessment on comparisons with the spot market, or with contracts entered into almost a year later. Spot markets are a bad place from where to contract baseline needs such as Pakistan’s. The requirement in the country is for reliable and continuous supplies to feed our power plants whereas spot markets are useful for more episodic demand. Later contracts are bound to have a lower price because the first contract is always the most expensive, as the country risk is priced in by suppliers. But once a country becomes a normal importer of LNG, that risk automatically declines, making subsequent contracts cheaper — holding other things constant.

There is a long and unfortunate history in Pakistan of making international deals controversial for no reason other than politics. Almost every major international deal the country entered into — from power generation to mining to LNG supply — attracted frivolous controversy. This style of politics has not brought any economic benefits to the country, and has served only to raise the risk of doing business with Pakistan. Those raising these questions in parliament should consider doing a little research on how global LNG markets are structured, and reflect on their motivations before proceeding further.

Published in Dawn, October 29th, 2017