The first couple of consignments of LNG to Pakistan after the deal was signed received in March/April 2016 were at the rate of 5.35 dollars per mmbtu reported by the media sourced to PSO. Max Gostelow of Platts - a leading independent provider of information, benchmark prices and analytics for the energy and commodities markets for over 100 years - is on record as having stated that prices of spot LNG for April delivery (2016) to Asia averaged $4.46 per mmbtu and that "we are also noticing that the Qataris are growing increasingly competitive on price due to their long position, and offering very good price for volumes delivered to their term buyers." These price statistics may lead opponents of the incumbent government to argue that there may have been a commission associated with this deal.
Second, Qatar Gas did not offer a contract price to Pakistan that could match what was available to a much larger buyer, say India. Saifur Rehman, head of Ehtesab commission (precursor of the National Accountability Bureau) during Nawaz Sharif's second tenure as the Prime Minister, with reportedly extremely close contacts with the Qatari royal family was therefore unable (or as some of Nawaz Sharif's/Shahid Khaqan Abbasi's/Saifur Rehman's) critics may argue, unwilling to procure a price that the country was offering to large buyers in 2016.
Third, 2016 was a buyer's and not a seller's market, a fact used by India to re-negotiate its long term deals with Qatar and Australia prompting Gas Authority of India Limited Chairman and MD B C Tripathi to point out that "we are moving from a supply constraint market to a supply surplus market". He further added that the market structure has changed from a time when Indian firms struggled to get an appointment with LNG exporters to gas suppliers now running after the world's fastest growing energy market.
Fourth, Pakistan agreed not to renegotiate the price for ten years or not before 2026 - an agreement that assumes a rise in LNG's international price however clearly Pakistan's negotiating team failed to employ those with relevant expertise in futures market/hedging who may have advised against the inclusion of this particular clause.
The confidentiality clause not blacked out by PSO stipulates that: "under no circumstances shall a party disclose confidential information to a shareholder or an affiliate if such shareholder or affiliate: (a) is a direct competitor of the seller or the buyer as the case maybe in the LNG or the natural gas markets, and (b) may use the confidential information to obtain a commercial advantage." Shahid Khaqan Abbasi's decision to announce the contract price may have had some input into India gaining a commercial advantage considering that in August 2016 India managed to have the price of the 25 year deal with Rasgas (Qatar's second largest LNG producer) reviewed and reduced to 5 dollars per mmbtu.
In the agreement Qatar Gas reserves the right to determine the amount by which the quantity of LNG to be delivered pursuant to Annual Delivery Programme is over or underestimated as a result of deviation in standard cargo content. Adjusted annual (upwards or downwards) contract quantity (ACQ) will be limited to: (i) 2 additional cargoes for delivery in any contract year having an ACQ of less than 195,000,000 mmbtu (or approximately 3.75 million metric tons) of LNG; and (ii) three cargoes in any contract year where the ACQ is equal to or greater than 195,000,000 mmbtu by notifying the seller...no later than 1 October of the year preceding and not less than 90 days prior to requested delivery. The concern with this clause is whether the incumbent government has requested any upward/downward adjustment for next year when it may or may not be in power.
Pakistan has also agreed to be disallowed from requesting downward adjustment during the last two years of the 15 year contract - 2030 and 2031 - and if prior to 1 October and no later than 15 November Pakistan fails "to notify the seller that it is unable to take delivery of a cargo during the following contract year and provided that such cargo is not scheduled to commence loading during the first 15 days of the following contract" the seller may find an alternate buyer and if the spot rate is lower than the agreed contract price then Pakistan would have to pay the difference. The agreement does not deal with the question of what would happen if Qatar failed to find an alternate buyer - a failing which reflects poorly on lawyers who must vetted the deal. In this instance it is also relevant to note that Shahid Khaqan Abbasi took the unprecedented decision of clearing the agreement with NAB.
India's August 2016 negotiations included Qatar foregoing the payment of under lifting LNG from what was agreed in the contract saving the country 9400 crore rupees. As a much smaller buyer it is highly unlikely that Qatar would allow Pakistan to renegotiate this clause in the event that there is a downward adjustment.
The deal also stipulates that all port charges (at loading and unloading of the cargo) would be made by the buyer (India renegotiated a deal with Australia where the ports charges would be picked up by the seller) but then inexplicably stipulates (blacked out on the PSO website): "the buyer may request no later than 15 days prior to loading date the sellers consent to take delivery of the relevant cargo at the receiving terminal other than the Elengy import terminal... the seller shall provide its consent (such consent not to be unreasonably withheld or otherwise to delivery to the alternate receiving terminal as soon as reasonably practicable."
The deal signed between Elengy (owned by Engro which, in turn, is owned by the Dawood group) and PSO was the subject of a NAB investigation which began in 2015 and focused on examining how Engro's investment of 150 million dollars to set up the terminal would enable it to earn 1.8 billion dollars in 15 years after it recovered the full investment in just 18 months. In addition, the government agreed to pay capacity cost to Elengy (also paid to Independent Power Producers as per the agreement signed during Benazir Bhutto's tenure that was much criticised by Nawaz Sharif at the time). The NAB case has not yet been concluded.
A second terminal is under construction by a consortium of Gasport (sole owner Iqbal Z Ahmed) and Fauji Foundation - the latter had also applied separately but failed to meet the tender's specifications. The scheduled completion date of this second terminal was June 2017 but is now rescheduled for completion in December 2017.
The question did or did not the PML-N leadership make some personal advantageous commissions on this deal does not have a definitive answer. Does the deal reflect poor negotiating skills on Pakistan's part? Yes. Does the deal reflect poor legal and futures/hedging expertise on the part of Pakistan's negotiating team? Yes. Can you attribute it to incompetence/lack of expertise or can you attribute it to a commission payable? Perhaps!
Copyright Business Recorder, 2017