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Renegotiating LNG

December 02, 2018

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PETROLEUM Minister Ghulam Sarwar Khan needs to understand that a hornet’s nest is stirred up every time the government publicly talks about its intention to renegotiate the terms of the long-term supply contract for LNG. Not only are the LNG suppliers left in the lurch, Pakistan’s credit standing in LNG markets is also impacted, and industry and other stakeholders in the country’s gas sector are rattled over the implications of a protracted dispute between the government and its international partners. Further, foreign investors become wary because they see the repeat of an age-old pattern that scares them more than any law-and-order situation in the country ie a government refusing to honour the commitments made by its predecessor. No economy worth its name can function if after every few years the clock is set back to zero, and all commitments are off.

Nothing is stopping the petroleum minister from undertaking a full review of the LNG long-term supply contract by himself, and perhaps even seeking legal opinion from reputable law firms with vast experience in such matters, as well as approaching consultants who can provide a cross-country study and guidance on how global LNG markets operate. And it would certainly be worth his while to also speak to those from the previous government who were involved in negotiating the contract in the first place. But giving indeterminate statements in public, like he did during his news conference on Friday and airing general reservations about some of the terms contained in the contract send the wrong signals. Such acts are more likely to be perceived as vindictive politics by key stakeholders, and history tells us that the conflicts that ensue usually do more harm than good to the country.

So if there is an intention to examine and renegotiate the terms of the LNG long-term supply contract, the minister would be well advised to tread with extreme caution, and ensure that whatever reservations he has about the contract are water-tight before going public with them. Many of the reservations that have been aired regarding the contract with Qatar have not stood up to scrutiny thus far, so it is all the more important that action not be initiated until a clear forward course is identified. What the country does not need at this juncture is yet another international arbitration case. Governments in Pakistan have a record of taking lightly the international commitments they have made, as in the Reko Diq and Karkey cases, as well as the first LNG deal which was nearly struck in 2006 but was shot down due to reckless handling and judicial action based on ill-informed reservations. A repeat of past mistakes in dealing with commitments made to foreign investors or other international partners must be avoided.

Published in Dawn, December 2nd, 2018

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