Pursuant to the IA, a fuel transportation agreement was executed between PSO and APL on May 13, 2004 for supply of RFO to Hubco whereby an annual guaranteed throughput of 1.5 million tons (MTs) was committed by PSO to APL at an agreed tariff of $12.13 per ton for first 19 years and thereafter $ 8.49 per ton as per section 18.1 of the IA 2027. The GoP under schedule -3 of the IA has provided a sovereign guarantee to pay for any shortfall in the guaranteed throughput which PSO is obliged to pay to APL.
Under the agreement, APL through PSO has lodged an audited claim on shortfall of guaranteed throughput (SGT) accumulating to Rs 998 million for the period July 1, 2017 till December 2018 besides an expected claim of Rs 884 million for the remaining period of the current financial year at the prevailing exchange rate. The claimed amount may further rise due to applicable exchange rate and late payment charges at the time of actual payment to APL.
The sources said, the underlying reason behind this shortfall was reduced RFO demand by Power Division for Hubco due to a paradigm shift in GoP policy towards increased utilization of cost efficient fuels and other alternate sources rather than RFO. Therefore, the guaranteed shortfall claim of about $ 12.735 million per annum will also be required to be paid by the Finance Division till expiry of the underlying agreements through budgetary grant/ allocation.
According to Petroleum Division, RFO transportation through the APL pipeline to Hubco has been almost discontinued which was a cause for the shortfall claim against guaranteed throughput to the tune of Rs 1.00 billion per annum. In case of delay in payment to APL, the late payment charges and exchange rate difference would also be payable by the government. Therefore, the matter of payment to APL through PSO was immediately taken up with the Finance Division.
In the meantime, Petroleum Division taking cognizance of the severity of the issue, convened a meeting of all the stakeholders, attended by the representatives of Finance Division, Power Division, Petroleum Division, OGRA, PSO, Hubco and APL with the intention to explore the options available for legal remedies in view of the relevant documents in order to minimize risk/ liability exposure on the part of GoP.
In the meeting held on January 1, 2019, it was decided that PSO, Hubco and APL will furnish a viable solution to resolve the issue. In the meeting, representative of Finance Division said that due to non-availability of budgetary allocation, a summary for release of APL's claim under technical supplementary grant may be moved for the approval of the ECC. APL stated that due to discontinuation of RFO supply through its pipeline their shortfall claims are being generated and they were facing financial and operational challenges. Therefore, in order to address the liquidity requirement of their business, they were in the process of obtaining a financing facility from Habib Metropolitan Bank. As part of their security package, the Bank would require a charge in their favour over the fixed and movable assets of APL, including but not limited to the pipeline. However, as per section 15.1 of the IA, this would require GoP approval. APL has requested GoP to grant its consent prior to the assignment or creation of security interests over APL's movable and fixed assets in favour of their bank. Petroleum Division, however, suggested that the proposal may be considered subject to the condition that the government would not be responsible for any financial obligation or loss in this credit facility and any delay involved therein. However, after soliciting ECC's approval on the credit facility, APL would submit a request to the Finance Division for provision of credit facility/ limit with due justification.
After a detailed discussion, the ECC approved a technical supplementary grant amounting to Rs 1.882 billion for the current fiscal year for payment of APL's shortfall through PSO. On August 28, 2019, the ECC also directed the Petroleum Division to quickly work out remedial measures for optimal use of the facility to reduce cost to the GoP.
The ECC also guaranteed consent on creation of security over APL's asset by lending bank. However, APL will submit a request to Finance Division for provision of credit limit with due justification.
