ECC likely to approve LNG import project

ISLAMABAD, Sept 22: The Economic Coordination Committee of the cabinet is expected to approve soon for implementation a project for import of 500 million cubic feet per day (MMCFD) of liquefied natural gas (LNG) through SSGC’s retrofitting facility.

A government official told Dawn that the board of Sui Southern Gas Company (SSGC) had already cleared the project for implementation following legal opinion of Supreme Court lawyer Khalid Anwar in support of it.

The project’s implementation is expected to partially bridge a widening gas shortfall currently estimated at about 1.8-2 billion cubic feet per day (BCFD) and replace a part of expensive furnace oil imports.

The project has been held up for more than a year because of an internal controversy among members of the board.

It has now been cleared after Petroleum Minister Shahid Khaqan Abbasi criticised the SSGC board for poor handling of the LNG-LPG Retrofit project at a time when the country faced acute gas shortfalls.

About a fortnight ago, the minister is reported to have informed the SSGC board that it would be held responsible if any future bids were higher than tolling charges offered by 4Gas Asia at 80 cents per MMBTU.

The cost of the retrofit project that is to utilise an LPG terminal purchased by the SSGC from a private firm two years ago for LNG handling is put at $163 million.

After including all variable charges like transportation etc, the total fixed value of the project is estimated to be between $1.8 billion and $2.2bn over 20-year life of the project.

SSGC board member Shahid Sattar had raised objections over the bid, saying it did not qualify the fundamental requirements of transparency and adherence to the PPRA.

Nevertheless, he said, the quoted price of $0.8 per MMBTU for gas without nitrogen ballasting which the bidder (4Gas) suggested be supplied to KESC’s Bin Qasim plant even though the proposed facility could not use unballasted gas.

Hence the quoted price with nitrogen ballasting was $0.88 per MMBTU and claimed that QED (the project consultant) had calculated the capacity tariff representing a 10-year rate of return of 48 per cent on the investment of $163m which was very high rate of return, resulting in a payback period of only two years.

He claimed the board had previously cancelled the bidding through a majority vote.

His view was, however, overruled when the bidder – 4Gas Asia – presented a legal opinion of senior SC lawyer which held that no violation of rules and procedures had been committed and the SSGC and the government should go ahead with implementation of the project to overcome energy shortage in public interest.

The 500 MMCFD LNG retrofit was a turnkey storage and re-gasification unit that required a few kilometres of pipeline for integrating with the SSGC’s transmission system.

The entire funding was to be arranged by the bidders while the SSGC was to bear the cost of travelling, legal and technical fee of consultants and pay tolling fee per MMBTU having guarantees for capacity utilisation.

Mr Anwar said that under article 38 of the 1973 constitution, it was incumbent upon the state to formulate policies that secure social and economic well-being of people, provide facilities for work and livelihood to all citizens and give basic necessities of life to the needy.

He said that if the LNG supply issue was not resolved in the near term it would be highly damaging to the Pakistani economy already reeling from a number of shocks.

“This would be a recipe for disaster,” he said, adding that re-tendering for LNG supply facilities would damage the country’s credibility in preserving sanctity of the international tendering process and seriously impair the achievement of the constitutional and basic duty of every government to improve and promote the well-being of people.

http://dawn.com/news/1044803/ecc-likely-to-approve-lng-import-project