ISLAMABAD: The project to set up a third LNG terminal may be running out of steam as investor interest wanes and the deadline for commencement of work draws near.
The government originally wanted the project up and running in time to meet the demand projected for winter of 2020, but that timeline is now looking difficult.
Informed sources told Dawn that some public sector players in the LNG market were leading the PTI government to a situation where it is compelled to strike a negotiated deal with an existing operator or let the industry and domestic consumers face major shortages.
“In both cases, the PTI government would face controversies and public criticism like the previous two governments of PML-N and PPP”, said an official.
Gas shortfall to increase next winter
The official who has attended recent Cabinet meetings and its Economic Coordination Committee (ECC) said some of the leading international LNG investors have started complaining to the government that they were being road blocked to participate in an expanding market because of unfair environment.
Another official said some members of the ECC also protested that the Port Qasim Authority (PQA) had placed a long and confusing summary before the ECC through the Ministry of Maritime Affairs (MOMA) just before the meeting, constraining their ability to make any constructive stance.
“The summary contained decisions of the past ECC meetings and minutes of a meeting of the PQA board envisaging stringent conditions that put new investors at a disadvantage when compared to existing LNG terminal operators”, an official said.
At the same time, he added, the existing operators were being asked to surrender their rights over the Quantitative Risk Assessment (QRA) or any respective site for which they may have any vested rights from any government entity before they be permitted to participate in the site allocation process.
At least five major international firms including Shell, Engro, ExxonMobil, Energas, Gasport, Trifugura, Mitsubishi and Global and local firms are lobbying to set up next terminal in the private sector. In given conditions, no investor would be able to complete the floating terminal within 13-14 month-deadline before winter next year and the government would be forced to facilitate a choice investor to expand existing Floating Storage Regassification Unit (FSRU) for short-term supplies.
Some stakeholders have also taken up the issue with Prime Minister and complained about the PQA and some bureaucrats.
“There appeared a move to maintain monopoly and the political government is being taken for a ride”, one of the prospective bidders told Dawn.
Under these circumstances, no new developer will sign up to the terms as recommended and discourage competition in the LNG sector.
The situation is because the new operators would not be given government guarantees which currently stand at $200 million per annum for the two terminal operators and yet the new bidders are being asked for concession fees, penalties and damages.
An official of the petroleum ministry said the PQA had over two years to assign potential locations, which was the first step towards feasibility and the new developers are required to set up a terminal in less than a year.
Another term required all the new LNG operators to allow Pakistan National Shipping Corporation (PNSC) to buy at least 20 per cent shares in the FSRU vessels.
The official said that at the end of the previous government’s tenure, the PQA claimed that the existing channel of Port Qasim faced safety issues and hence all prospective bidders should undertake their own QRAs. After this it was reported that the existing channel had congestion issues.
Meanwhile, PQA’s own consultant — HR Wallingford conclusively advised that “all sites — including existing channel, Charra Creek and Chan Wadoo Creek Area — are feasible with each site having both advantages and disadvantages” and linked it with QRAs from the site sponsors covering safety, security and operability aspects of each site”.
It added that “all sites are considered to be accessible by up to QMax LNG carrier sizes”. The fresh condition also required that, except in case of international embargo, if the FSRU operations intend to sail off the FSRU before the expiry of the contractual period, the PNSC shall have the first right to buy the vessel at 10pc less than the market price.
The official told Dawn that this is despite the fact that an existing operator was given tax and duty-free exit on June 28 from the port for maintenance from international market.
This is apparently against the basic LNG infrastructure business in which FSRUs are leased by terminal operators and as such they do not own FSRUs and therefore cannot support PNSC to buy an FSRU.
Because of limitations, the ECC last week agreed as fait accompli to give post-facto approval of a PQA decision to hire HR Wallingford, the consultant, without the requirement of procurement rules.
The PQA has also proposed that due to urgency of the matter, the government should exempt PQA from public tendering and offer five sites to prospective terminal developers through negotiated tendering to award the contract to one bidder against highest performance guarantee.
Published in Dawn, July 10th, 2019