Giving the background, the sources said, the Government of Pakistan (GoP) has entered into a Financing Agreement (FA) with the Saudi Fund for Development (SFD) for import of petroleum products/crude oil and LNG. The FA was signed on February 15, 2019 during the visit of Saudi Crown Prince, Muhammad Bin Sultan in Islamabad.
Under the FA, the GoP will import petroleum products, crude oil/LNG from Saudi Arabia for about $3.2 billion annually ($ 270 million/ month) on a 12 month deferred payment basis. However, the FA may be extended to cover two more years upon the consent of the two parties. The GoP will provide an unconditional and irrevocable sovereign financial guarantee under article-8 of the FA.
Pursuant to the FA, Pak-Arab Refinery Company (PARCO) and National Refinery Limited (NRL) will procure crude oil from Saudi Aramco (SA) while PSO and Pakistan LNG (PLL) terminal will procure petroleum products and LNG respectively from Saudi Aramco product Trading Company (ATC). PARCO and NRL are already procuring crude oil from SA under long term agreements, while PSO will have to enter into a Sale Purchase Agreement (SPA) with ATC for import of petroleum products.
PSO, being a public sector entity, is obliged to procure petroleum products in accordance with the provisions of Public Procurement Rules, 2004, however, open competitive bidding process as per said rule cannot be followed in the case of supply through SFD under the FA. Rule-5 of the PPRA Rules provide for an exemption in the case where international and inter-governmental commitments of the Federal Government are involved. In order to invoke Rule-5 there are Public Procurement Regulations 2011, whereby the ECC of the Cabinet may authorize Petroleum Division to proceed in terms of Rule-5 of the Public Procurement Rules 2004.
The sources maintained that in accordance with the ECC's decision of March 28, 2017, the quality of imported petroleum products is tested by HDIP laboratory at the discharge port prior to unloading. However, while negotiating the terms and conditions of the SPA with PSO, ATC has insisted for procurement to be based on CFR/CIF trade terms in line with incoterms 2010 published by the International Chamber of Commerce (ICC), as amended from time to time. Under these terms, quality will be determined / finalized at the load port based on the test results of the independent laboratory. Consequently, the existing procedure for sampling and testing of imported petroleum products intimated by OGRA from time to time will have to be relaxed for supplies arranged by PSO from KSA under SFD.
In order to enable PSO to enter into an agreement with ATC for supply of petroleum products, Petroleum Division has submitted the following course of action: (i) PSO may be allowed to negotiate and sign an agreement with ATC for supply of petroleum products under SFD, in accordance with the provision of Rule-5 of the Public Procurement Rules 2004 and Public Procurement Regulations 2011; (ii) the commercial negotiations on the prices of petroleum products, to be imported under SFD, may be undertaken by the Price Negotiation Committee (PNC), already established by PSO's Board of Management for price negotiations with Kuwait Petroleum Corporation (KPC) for import of petroleum products under the long -term contract signed between PSO and KPC. However, Director General (Oil) and a Joint Secretary will be nominated as government representatives of Petroleum and Finance Divisions respectively; (iii) PSO may be allowed to execute the arrangement with ATC based on CFR/ CIF trade terms in line with Incoterms 2010, published by ICC, as amended from time to time. Accordingly, the existing procedure for sampling and testing of imported petroleum products will be relaxed for imports under this agreement to the extent that in the case of any quality dispute on the sample tested by HDIP at the discharge port, the test results of an independent laboratory at the load port would be treated as final and binding.
OGRA, in its comments on the summary has stated that PSO is already in long term agreement with JPC for the purchase of HSD etc. The GoP may therefore, examine all legal and financial obligations/implications (if any) with respect to KPC agreement, and may bring this proposal before the ECC prior for taking an informed decision.
With regard to relaxation for sampling/ testing, OGRA maintains that GoP being "competent authority" may revisit the existing procedure, but any relaxation (if required to be given), must be applicable to all OMCs across the board to keep one yardstick. The dispensation to the extent of PSO only would be discriminatory and against level playing field, setting a precedent.
