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Ministry of Law and Justice has reportedly warned the government that new investment in the country will not be in sight if contracts with Liquefied Natural Gas (LNG) terminal companies are re-opened, sources close to Special Assistant to Prime Minister on Energy told Business Recorder.

Former Prime Minister, Shahid Khaqan Abbasi, former Finance Minister Dr Miftah Ismail and former Managing Director Pakistan State Oil (PSO) are behind bars for their alleged role in awarding of contract to M/s Engro Elengy Terminal Pakistan Limited (EETPL).

On October 18, 2018, the Federal Cabinet had directed Petroleum Division and Finance Division to conduct negotiations with LNG terminal companies for rationalizing the excessive returns being earned by them.

This decision is yet to be implemented by the Petroleum Division despite the fact that one of its former Secretary, Abid Saeed, and incumbent Managing Director ISGC, Mobin Saulat, turned approver against the three accused.

On October 2, 2018, the then Finance Minister, Asad Umar while presiding over a meeting of the Economic Coordination Committee of the Cabinet, had directed Petroleum Division to explore a mechanism for revisiting Rate of Equity (RoE) and Rate of Investment (RoI) of both LNG terminals as the ECC was informed that the LNG terminal is not based on Independent Power Producer (IPP) cost plus model, rather it is a commodity/tariff bidding model. The terminal is based on Build-Own-Operate (BOO) system.

The Petroleum Division had informed the ECC that an open international PPRA compliant bidding process was adopted by M/s Inter State Gas Systems (Private) Limited (ISGS) and the bidder with the lowest re-gasification (i.e, tariff) was selected. The bid was evaluated by the International Consultant M/s QED, hired by USAID, who compared the Elengy Terminal Pakistan Limited (ETPL) price proposal with the following aspects: (i) bottom up costing analysis conducted by the Consultant; (ii) 4GasAsia's proposals for the Retrofit Project; (iii) recent international Floating Storage and Re-gasification Unit (FSRU) type projects; and (iv) LNG terminals in India.

The meeting was informed that the LNG terminal-1 was Brown Field project. Government of Pakistan, through ISGS Company, had issued an open tender for LNG terminal-1 in August 2013. The ETPL won the bidding process, which was concluded in accordance with PPRA Rule. LNG Services Agreement (LSA) was signed with SSGC on April 30, 2014 for a period of 15 years. It was stated that the cost of the project was $ 120 million excluding FRSU.

Regarding RLNG terminal-2, Petroleum Division apprised that this terminal was a green field project. The government of Pakistan, through Pakistan LNG Terminal Limited (PLTL), had issued an open and competitive tender for its establishment in 2015. M/s PGP Consortium Limited (PGPCL) won the bid for the project. OSA was signed with PLTL on July 1, 2016. The cost of the project was $ 176.5 million excluding FSRU.

Petroleum Division further stated that the LNG Terminal-2 was awarded on a BOO basis and is based on a commodity/tariff bidding model, rather than IPP cost plus model. An international PPRA compliant bidding process was held and the bidder with the lowest re-gasification cost (i.e. tariff) was selected. The rates were evaluated by the consultant M/s Galway International of Singapore.

Petroleum Division further apprised that the Rate of Equity (RoE))/ Rate of Investment (RoI) for terminal-1 was 15 per cent while RoE for terminal-2 was 22.74 per cent and RoI was 15.4 per cent.

During the ensuing discussion, the ECC had observed that the LNG terminals were getting a RoE on their investment which was higher than that indicated by the Petroleum Division, proposing review/revisit of the terminal agreements to explore the possibility of their amendment/revision.

The ECC directed the Petroleum Division to seek legal opinion of Law and Justice Division on the agreements of LNG terminals, to ascertain the legal options available with the government for revisiting terms and conditions mentioned in the agreements and submit a report thereon to the ECC for reconsideration.

Ogra and the Petroleum Division have also been directed to present financial details pertaining to equity, rate of return on equity and investment etc, in respect of both LNG terminals to the ECC for further consideration. Petroleum Minister has been asked to look into the reason for withholding information on the part of the concerned officers and to take necessary action.

On October 1, 2019, the Cabinet Division informed the Federal Cabinet that National Accountability Bureau (NAB), the anti graft agency, is investigating one of the terminals adding that no negotiation can take place during the pendency of the inquiry.

"Ministry of Law and Justice has advised against re-opening of past agreements. New investors would be shy of investment if past contracts are re-opened. Terminals are being fully utilized. Negotiations with terminal operators are not feasible at this stage," the sources quoted Cabinet Division as briefing the Federal Cabinet on behalf of Petroleum Division.

The Cabinet had also allowed Petroleum Division for the signing of protocol to amend the agreement for cooperation in the field of hydrocarbons between Pakistan and Turkey and directed that the case be placed with the ECC for consideration.

On October 18, 2018, the then Minister for Petroleum, Ghulam Sarwar Khan along with the then Minister for Information, Fawad Chaudhary while addressing a press conference had announced that the government would renegotiate LNG terminals deals as an audit unearthed that contracts were signed at an unprecedented high rate of return in dollar terms.

The minister, who is now dealing with Civil Aviation matters, had stated that two terminals were established on a 15-year contract at a very high rate of return. The minister stated that first terminal deal was signed between SSGCL and ETPL, adding that total investment was $120 million, both equity and loans, at the rate of return of 44 percent in dollar terms. He said that no example of such a high rate of return was available in the world. "If such a big favour was given to Engro, there must be some kind of underhand deal," the petroleum minister maintained

However, a couple of days later, Engro Elengy Terminal Pakistan Limited (EETPL) made it clear that the government does not have the right to review the terminal contract. The firm took this stance a day after the federal government announced it would renegotiate agreements with the LNG terminals established in Karachi.

Petroleum Division has informed the Cabinet that the Turkish counterpart does not trade in LNG, while Pakistan already has a number of agreements with countries trading in LNG. Hence, there is no need for any agreement with Turkey at this stage. The decision may be withdrawn.

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.