ISLAMABAD: The Economic Coordi­nation Committee (ECC) of the Cabinet on Wednesday approved a framework agreement with Azerbaijan for the import of Liquefied Natural Gas (LNG) being signed during the ongoing visit of Prime Minister Shehbaz Sharif to Baku.

The meeting of the ECC presided over by Finance Minister Ishaq Dar also approved two supplementary grants of Rs562.5 million for maintenance of VVIP helicopters and employees-related expe­nses of the Heavy Electrical Complex.

While considering a summary of the Ministry of Energy (Petroleum Division), the meeting allowed the state-owned Pakistan LNG Ltd (PLL) to execute the proposed framework agreement with the State Oil Company of Azerbaijan Republic (Socar) Trading on a government-to-government basis.

The ECC directed the Ministry of Petroleum to determine Pakistan’s needs for LNG at least three months in advance on a rolling basis.

The agreement would be valid initially for one year and extendable for one year. Under this, Socar will offer one LNG cargo per month 45 days before the start of the relevant delivery window and each offer for the cargo will have a set validity period during which PLL would accept or not the offer. The LNG price would be offered by Socar to PLL in US dollars per mmBtu (million British thermal units) for each cargo of 3,200,000mmBtu 45 days before the delivery window. The payment will be due within 30 days following PLL’s receipt of the invoice for which PLL would issue a prior letter of credit (LC) from local banks. LC’s confirmation charges would be on the seller’s account.

Likewise, port charges for Socar would be capped at $500,000 whereas all costs of Port Qasim including taxes shall be defined as port charges. Each offer will include the applicable demurrage rate expressed as a fixed amount in US dollars per day and on a pro-rata basis for each part of a day and the PLL and Socar will sign a confirmation notice, at the time the offer for any cargo is accepted by PLL.

A price negotiation committee (PNC) constituted in 2016 for LNG prices had cleared the framework agreement between the PLL and Socar in November 2022 but had directed the PLL to formulate a mechanism to evaluate the price. Under the mechanism cleared by the PNC on March 1, PLL will evaluate the offered price in comparison with the prevailing international price as well as consult downstream customers in the power sector to ensure affordability.

Informed sources the business model would generally depend on distressed cargoes that are available in the market for a certain period beyond committed schedules and are picked at a discount by firms with the capacity to divert them to their clients for a win-win.

The ECC was informed that PLL used to import up to 3 cargoes a month through spot tendering but has been facing difficulties in securing even a single cargo since June 2022 when its repeated tenders failed to attract any bidder.

Published in Dawn, June 15th, 2023