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The federal government is reportedly facing stiff resistance from Ministries of Communications, Planning, Development and Reform and Public Procurement Regulatory Authority (PPRA) on a "fishy deal" for the establishment of the third LNG terminal, well informed sources told Business Recorder. This resistance was witnessed during the ECC meeting held on July 3, 2019 with Finance Advsier Dr Abdul Hafeez Sheikh in the chair.

On March 27, 2019, ECC gave the following directions: (i) Ministry of Maritime Affairs to broaden the scope of scientific study to be carried out for determination of suitable place for establishment of LNG terminal and include Somiyani site in the study as well; and (ii). Ministry of Maritime Affairs to expedite process for establishment of 3rd LNG terminal in view of imminent shortage of gas in the country and submit progress report to the ECC within 15 days.

Ministry of Maritime Affairs stated that in view of the urgency expressed by the ECC, to establish additional LNG terminal, PQA management assigned the task to review five QRA reports available in respect of five potential offshore LNG terminal sites to M/s HR Wallingford, who were already engaged with PQA in conducting detailed "feasibility study on deepening, widening & straightening of existing navigational channel and commissioning of alternate channel".

On May 15, 2019, M/s HR Wallingford submitted their site selection review report, quoted estimated capital dredging required for deepening, widening and straightening of main channel at 48 million cubic meters and 10 million cubic meters for opening of alternate channel. The total cost of capital dredging can be ascertained after completion of tendering process. Further, M/s HR Wallingford concluded that all the five available QRAs are feasible from navigational standpoint, subject to adjustment and other relevant studies.

The PQA Board discussed that as the ECC has placed expeditious establishment of 3rd LNG terminal at the highest priority i.e. prior to both completion of "feasibility study on deepening, widening & straightening of existing navigational channel and commissioning of alternate channel" and also prior to completion of LNG Zone Study an expeditious process for award thereof must be derived. Accordingly, PQA Board in its meeting held on June 26, 2019, unaninmously resolved: (i) in view of urgency not attributable to PQA, approval of the Federal Government be solicited under Rule 42(d)(iii) of the Public Procurement Rules, 2004, for PQA's decision to engage M/s HR Wallingford, for review of five QRA available at price of GBP f10,000/- and Rs 800,000/- only" (ii) in view of urgency not attributable to PQA, approval of the Federal Government be solicited to exempt PQA from public tendering; and to offer five LNG sites to the prospective LNG terminal developers through negotiated tendering under rule 42(d)(iii) of the PPR, 2004, for award of 3rd LNG terminal to one of the five proponents, whose QRAs have been reviewed and found feasible by M/s HR Wallingford on the following terms and conditions:

(a) Concession fee - successful prospective LNG terminal developer shall be required to submit a mandatory concession fee of $ 10 million to Port Qasim. (b) Performance bond - each prospective LNG terminal developer will submit a mandatory performance bond of at least $5 million; and which will be the criteria as against which the bids will be assessed. The proponent offering highest performance bond will be declared successful for award of 3rd LNG terminal, subject to fulfilment of all other stipulated conditions. The performance bond will be forfeited and encashed in case of failure to operationalize and commission terminal by November 1, 2020. The performance bond of each unsuccessful bidder will be returned within two weeks of the financial bid opening.

(c) Liquidated damages - the eligible LNG terminal developer will thereafter be required to operationalize and commission the LNG terminal by November 1, 2020. In case of failure to commission the terminal by November 1, 2020, liquidated damages in the shape of $ 200,000 per week or pro rata thereof will be imposed till commissioning of the terminal.

(d) Minimum Guaranteed Throughput (year-wise). Minimum royalty will be charged on the following basis if the throughput is lesser: 1st year - 250 mmcfd, 2nd year 350 mmcfds, 3rd year 450 mmcfd and 4th year 550 mmcfd.

(e) Royalty and payments to PQA: Minimum price for royalty is $ 1.9 per ton. The royalty will increase 25% every five years. The LNG terminal developer will guarantee to pay berthage, pilotage, wharfage and all other applicable charges to PQA @ prescribed gazetted notified rates, revised from time to time.

(f) Site to be allocated, LNG terminal developer will only be allotted its respective site, against which the proponent has already conducted and submitted its QRA; subject to site-specific QRA, FMBSS and relevant studies duly vetted by PQA appointed Consultant, and subject to adjustment and modification as required after the receipt of report from M/s HR Wallingford for deepening, widening and straightening of main navigational channel and commissioning of alternate/new inner channel and also subject to LNG zone study recommendations.

(g) The LNG terminal developer will clear all its outstanding dues against Port Qasim Authority.

(h) Dredging of the berthing basin in aiding the approach to the Jetty from navigational channel will be the responsibility of the developer.

(i) The LNG terminal developer will not be in any legal/quasi legal dispute with PQA.

(j) Prospective LNG Terminal Developer. To participate each present proponent offshore LNG terminal developer for the LNG site must first agree to forego, revoke, cancel any and all rights that they may have in respect of the QRA & or any respective site for which they possess any vested right from any government regulators including Port Qasim Authority from whom they have obtained any approvals for sites etc in respect of the development of the LNG terminal before they will be permitted to participate in the allocation process of their present prospective LNG site.

(k) Approvals required. It will be the sole responsibility of the successful terminal developer to carry out all the requisite/relevant studies with regard to the site and seek the necessary/requisite permissions as under applicable laws and policies, including Full Mission Bridge Simulation Study (FMBSS) in order to confirm the site teechnically and operationally being feasible and secure, and in consonance with the outcome and findings of 'channel deepenig and widening study' carried out by M/s HR Wallingford and any necessary adjustment needed to be made with respect to site location thereof. All studies will be witnessed & vetted by PQA approved Consultant at the cost of the successful LNG terminal developer.

The successful LNG terminal developer will sign the Implementation Agreement (IA) with PQA. The other terms & conditions of the prospective IA will remain the same as per the existing LNG terminals IAs already in place.

The Board further resolved that in view of urgency not attributable to PQA, approval of the Federal Government be solicited to exempt PQA from public tendering for appointment of LNG Consultant through negotiated tendering under rule 42(d)(iii) of the PPR, 2004, for review of reports including Qualitative/Quantitative Risk Assessments (QRAs) and prepare project guidelines for preparation and submission of technical and financial proposals by LNG terminal developers; evaluate technical and financial proposals and assist PQA in negotiation of IA and also to supervise and monitor the quality of work executed for implementation of LNG Terminal and issue successful commissioning certificates.

The Board resolved that in view of urgency not attributable to PQA, approval of the Federal Government be solicited to exempt PQA from public tendering for appointment of Legal Consultant through negotiated tendering under rule 42(d)(iii) of the PPRA 2004, for the purpose to represent, assist, coordinate, guide, draft, negotiate and/or any other act required in respect of issuance of LoI, negotiate and draft IA, performance bond/concession fee and/or any other legal document as required and/or deemed appropriate/necessary till finalization of award of third LNG terminal process.

The Board resolved that approval of the Federal Government be solicited to allow amendment in the PQA Master Plan to accommodate the prospective third LNG offshore terminal, as per Section 10 of PQA Act, 1973.

Ministry of Maritime Affairs further proposed that the government should not provide any financial and off take guarantees for the prospective 3rd LNG terminal operator and to all the future LNG terminal operators. Furthermore, since Somiyani site at Balochistan is beyond the jurisdiction of MoMA/port authorities, it may be excluded from the proposed study for establishment of LNG terminal/zone.

Ministry of Maritime Affairs also proposed that henceforth it should be made binding upon all new FSRU terminal operators to allow Pakistan National Shipping Corporation (PNSC) to buy at least 20 percent shares in FSRU vessels. Furthermore, except in case of international embargo, if the FSRU operator(s) intend to sail off the FSRU before the expiry of the contractual period, PNSC will have the first right to buy the vessel, ten percent less than the market price. The Secretary, Ministry of Maritime Affairs while elaborating the proposal apprised the forum that in case of excluding Pakistan National Shipping Corporation from buying 20% shares in FRSU vessels, the National Security may be at stake.

During the ensuing discussion, Secretary, Communication Division opined that ECC is not mandated as per its charter to deal with the cases regarding exemption from implementation of PPRA Rules, 2004. Cabinet Secretary apprised the meeting that under SRO bearing No.719(I)/2011 of July 18, 2011, the ECC considers a case for exemption under rule-5 of PPR, 2004 after undertaking due consultations with the stakeholders. The Additional Secretary, Planing, Development & Reform Division endorsed the views of Secretary, Communications Division and stated that it is the responsibility of the procuring agency to meet all codal formalities required under prescribed Rules for establishment of 3rd LNG Terminal.

PPRA while endorsing views of both the Ministries clarified that the resolutions moved by PQA do not qualify for the conditions and criteria as laid down in rule-42 (d) of PPRA, 2004. He stated that the Supreme Court in its decision in Human Rights case No. 7734-G/2009 and 1003-G/2010 has declared that "thus, in presence of PPRA/ Rules, it was incumbent upon the Minister and the Secretary, Water & Power as well as other functionaries not to have put up such a case before the ECC in violation of the PPRA Rules." He further stated that as per PPRA Regulatory Framework, ECC is empowered to proceed only in case of the Federal Government commitment with Sate or States, up to the extent of conflict with PPRA Rules. Moreover, existing energy crises is not such an unforeseeable event for which extreme urgency under Rule 42(d) (iii) could be invoked to award the contracts on negotiated tendering. Even in case of negotiated tendering, all the requirements to assess the technical capacity and working methodology of the prospective bidders are required to be considered in addition to technical and financial negotiations rather than awarding the contract on just the basis of the amount of performance bond. He concluded that only Federal Government can grant exemption from PPRA Rules & Regulations on the recommendation of PPRA as provided in Section 21 of PPRA Ordinance, 2002 (No. XXII of 2002).

Adviser to the Prime Minister on Institutional Reforms and Austerity stated that LNG requirement in the country will increase substantially in winter 2020 and due to limited capacity, existing LNG terminals would not cater additional imported LNG. Therefore, ECC in its earlier decision, directed for establishment of 3rd LNG terminal before November, 2020. He stated that the ECC may facilitate PQA to accomplish its assigned task well before winter, 2020. The ECC agreed, in principle, to the resolutions of PQA Board with the direction to Ministry of Maritime Affairs to seek recommendations of PPRA and legal advice of Law & Justice Division on the resolutions of PQA Board, before proceeding further.

After a detailed discussion, the ECC directed Ministry of Maritime Affairs to seek recommendations of PPRA and legal advice of Law & Justice Division on the resolutions of PQA Board, and resubmit the case to ECC for its consideration.

Copyright Business Recorder, 2019

the author

I did graduation from the Government Murray College Sialkot and MSc in Psychology from the University of Punjab. I am in journalism since 1990. I worked in Daily Nawa-i-Waqt as sub editor and staff reporter in Daily Pakistan and Daily Din prior to joining Daily Business Recorder. I have been associated with this newspaper since 2000 as staff reporter. Energy Sector, Commerce / Trade and Industries are key areas of my interest. I have also the credit of exposing number of scams like Rental Power Plants (RPPs), LNG, sugar import, etc.