ECC okays $2 bn LNG agreement


ISLAMABAD: The Economic Coordination Committee (ECC), which met under Finance Minister Senator Ishaq Dar on Friday, ignored opposition by the Law Ministry and approved a huge $2 billion LNG terminal services agreement, raising questions whether the decision would be able to stand judicial scrutiny if challenged.


The approved agreement has been signed between Elengy Terminal Pakistan Limited (ETPL) of the Engro Corporation and Sui Southern Gas Company, a senior official who attended the meeting told The News.


The ETPL will, inclusive of levelised toll fee, charge 0.66 cents per MMBTU against terminal services. Oil and Gas Regulatory Authority (Ogra) will later on decide the toll fee.But more challenges have emerged against the agreement from within the government institutions. It was interesting to note that while a politically dominated ECC approved the LNG services agreement on Friday, the Auditor General of Pakistan keeping in view the direction of the Public Account Committee (PAC), ordered a special audit of the same agreement.


The Auditor General’s office thinks that there are seven serious deviations in the contract from the original Request for Proposal (RFP) in violation of PPRA rules.It was the second meeting of ECC that was exclusively convened to approve only one agenda item, the LNG services agreement, as in the earlier meeting that was held on Wednesday it was decided to seek the opinion of the Law Division on the deal when Finance Secretary Dr Waqar Masud raised the point that the contract was awarded on single bid basis and there were some deviations from the RFP.


In Wednesday’s meeting the secretary law was given the task to furnish legal opinion on the contract within 36 hours.Top mandarins of the Law Ministry spent the whole day on Thursday putting questions and getting answers from top officials of Sui Southern over the LNG contract. Finally, it came up with the legal opinion that the contract cannot be approved by the ECC but by the “federal government” as defined in the 18th amendment, which is the prime minister and his ministers.


But the ECC approved the contract directing the federal minister for petroleum and natural resources to send the summary of LNG service agreement to the prime minister for approval as per opinion of the Law Division.


The Law Division was of the view that since the LNG services agreement has been agreed upon between two commercial entities, ETPL and Sui Southern, so the ECC was not the forum to validate it.


The Law Division also raised the single bid issue on the basis of which the contract was awarded to ETPL on “ball park price” and asked for further negotiations for more reduction in terminal services fee.


Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi and the secretary petroleum responded by saying that the said price of 0.66 cents per MMBTU was the best price in the region and even less than India’s.


To a question raised by the Law Ministry over transparency in the contract through open bidding, the secretary petroleum assured that the LNG terminal services deal was fair and transparent and the price of terminal services fee was the best and the ministry takes responsibility of the deal with ETPL.


When contacted, CEO of EVTL Imranul Haq said after the ECC approval, ETPL and Sui Southern will formally sign the agreement and ETPL will start construction of the terminal at Port Qasim.


Under the contract, ETPL is bound to construct the terminal in 335 days after signing LSA in case the ECC accords approval to it. And if the ETPL fails to construct the terminal, then it will have to pay the penalty of $150,000 per day to Sui Southern.


The government wants to ensure the import of 200 MMCFD LNG from Qatar by November 1, 2014 to meet energy requirements of the country.The terminal project will primarily handle a minimum of 200 mmcfd of re-gasified LNG in the first year and 400 mmcfd in later years. The contract will be valid for 15 years and is expected to begin on November 1, 2014.


As per the summary that the ECC approved, ETPL will be indemnified from its obligations to pay capacity charges in case of failure to import LNG by PSO or the government. And to this effect, PSO or the government will provide a comfort letter to the LNG terminal operator.


The Sui Northern Gas Pipelines Limited (SNGPL) will also provide a comfort letter to ETPL ensuring that it will take off its share of the gas delivered under this project.


The management of the company will adjust their accounting procedures to ensure that imported LNG is ring fenced as it relates to the UFG (unaccounted for gas) and to this effect, the ministry will arrange for a policy directive to Ogra to treat LNG as ring fenced for the purpose of UFG calculation.The PSO and Sui Southern will enter into back to back agreements for re-gasified LNG take-off under commercial transaction structure.$2-bn-LNG-agreement