ISLAMABAD: Private gas sector investors are perturbed over unremitting hitches to their investment plans for utilisation of surplus processing capacity of LNG (liquefied natural gas) terminals and setting up of new terminals, while the consumers and national economy pay double the LNG re-gasification charges.

About 10 major companies or their associates have complained to the government that their efforts to bring LNG into the system at competitive rates were facing roadblocks and some of them were fed up to pursue their investment plans. These companies include Energas that also has partners like ExxonMobil, Nebras Power, a joint venture of ExxonMobil and Qatar Petroleum, United Gas Development Company (UGDC), and four independent power producers, besides some other private businesses.

This happens despite the fact that the government continues to pay 70-80 cents per unit processing charge to the LNG terminal operator instead of less than 42 cents committed by the Pakistan Gasport Limited, causing about Rs7 billion additional cost to the consumers because of capacity underutilisation.

The re-gasification capacity at two existing terminals is paid through a guaranteed fixed capacity charge and any idle capacity results in higher re-gasification tariff, according to the Pakistan LNG Terminal Limited (PLTL), a government entity under the petroleum division. “During 2018, the first operating year of terminal-2, due to idle capacity of 47 per cent, the average tariff worked out to be $0.7841 (instead of $0.4177 committed at full capacity) which resulted in cost loading of approximately $45 million (Rs6.2bn) to the consumers,” the PLTL reported to the petroleum division.

The combined capacity of two terminals — Engro and Pakistan Gasport — is about 1350 million cubic feet per day, but seldom they processed more than 1000mmcfd despite the fact that demand in the system is much higher and the gas shortfall in winters could be anywhere between 2000 and 4000mmcfd. “The consumer is starving, the capacity is available and suppliers are ready for a cut-throat competition and yet we are paying double the cost. It is a serious management problem and not the way businesses are done,” said an investor.

The situation is “in direct contravention to the PM Imran Khan’s efforts on ease of doing business and encouraging investment in Pakistan”, protested Energas, a company owned by the leading Tabba Group, in a recent communiqué. “Our international partners too have highlighted some of these issues in private,” Mohammad Ali Tabba wrote after having worked on three different investment plans since 2017.

Separately, local firm UGDC complained that its efforts to arrange LNG supplies at cheaper rates, despite having a licence to do so since 2016 and completion of all subsequent legal and regulatory formalities, suffered roadblocks even though its consumers were being denied gas quantities often without a prior notice by gas companies.

“Pakistan LNG Limited is presently not fully utilising its allocated re-gasification capacity of 600mmcfd (4.5 million tonnes) in Gasport terminal and there are idle slots available in their annual delivery plan to accommodate additional cargos,” wrote UGDC chief Ghiyas Abdullah Paracha, adding that his company should be allowed to avail this unutilised capacity on a ‘take or pay’ basis to let the CNG business at its own with price saving and environment benefits against expensive petrol.

Mohammad Ali Tabba said Energas had engaged Qatar Petroleum and ExxonMobil for supply of competitive energy solutions targeted towards power, transport and industrial sectors, signed a separate agreement with ExxonMobil on developing a LNG terminal and engaged Nebras Power for participation in privatisation of power projects. But the efforts made since 2017 to get allocated a viable site for the terminal remained unfulfilled and regulatory approvals were on the verge of expiry “due to inability of the competent authorities in providing the relevant deliverables”, he added.

On top of that “we face anti-competitive pressures to the detriment of free competition”, Mr Tabba said, adding that the company wanted utilisation of the existing idle LNG capacity, fast-track development of another terminal and importing LNG independently at cheaper rates for its private clients.

Separately, four smaller independent power producers (IPPs) are also reported to have sought spare terminal capacity and permission for privately importing LNG at competitive rates that could reduce their generation cost. These four IPPs — Saif, Sapphire, Halmore and Orient — are considered the most efficient plants, but the first three among them remain mostly unutilised in the absence of guaranteed fuel supply agreements. With a bankable LNG supply arrangement, these plants move to the top of the economic merit order being the cheapest to the detriment of the powerful owners of other larger IPPs.

A petroleum division official said the allocation of spare capacity of the existing terminals to the private entities could compromise future business of the public sector gas companies, but it was also a fact that there were constraints in the pipeline network to fully utilise 1,350mmcfd capacity of the two terminals unless a 17km pipeline was completed in Sindh.

Nevertheless, the official said, the government was calling all stakeholders, including gas companies and private investors seeking new opportunities or utilisation of existing capacity, to a meeting to be held soon to adopt a holistic approach to the challenge.

Published in Dawn, February 25th, 2019