LNG – Oil and Gas Regulatory Authority Ordinance, Pakistan
On 28 March, 2002, the Oil and Gas Regulatory Authority Ordinance , Pakistan was passed. Under the ordinance, the Oil and Gas Regulatory Authority (Ogra) is the regulator for our oil and gas sector. Our internal LNG supply chain comprises three entities – Pakistan State Oil (PSO), Sui Southern Gas Company Limited (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL). Ogra has advised PSO, SSGC and SNGPL that the “pricing, sale and invoicing of LNG business in its existing form and documentation were not legal in the eyes of the law….”
On August 31, Ogra wrote a letter addressed to CEOs of PSO, SSGC and SNGPL. The letter states that the “rate at which LNG cargoes have been procured have not been presented” and that “no evidence/document has been provided”. Amazingly, an estimated Rs30 billion worth of LNG has been imported and sold without Ogra’s price determination.
SSGC, with unsecured trade debts of Rs66 billion and an equity of Rs18 billion, is technically bankrupt many times over (courtesy Dr Asim Hussain). SNGPL is nearly bankrupt. As of September 17, PSO’s receivables stand at a whopping Rs232 billion including the brand new LNG circular debt of Rs17 billion in just six months of trading in LNG.
For the record, Zuhair Siddiqui, ex-MD-SSGC, who signed the LNG Terminal Agreement, is in NAB’s custody. For the record, Arif Hameed, MD-SNGPL having refused to sign the LNG Tripartite Agreement was forced into resigning (not by the board but by the FIA; intriguingly, the FIA enquiry ended right after resignation).
Commercial: The LNG supply chain has three players – the supplier, the re-gasifier and the purchaser. Consider this: SSGC was forced into signing a 15-year agreement with Engro that pays Engro a hefty $272,479 per day for the following 15 years but there is neither an agreement with the supplier (Qatar Gas) nor with potential purchasers, our Independent Power Producers (IPPs).
One, IPPs are not buying because LNG is coming out to be at least 20 percent more expensive than furnace oil (can the FIA convince the IPPs as well?). Two, the already bankrupt SSGC and the nearly bankrupt SNGPL are in no mood to assume the payment of $272,479 per day every day of the year.
Next. Indian Oil Corp (IOC), India’s largest refiner, is seeking LNG cargos for delivery in October through December at $6.65/mmBTU while PSO has awarded a tender to Gunvor at $8.3080/mmBTU. In a nutshell, LNG’s price to the end Pakistani consumer is too high and does not make any commercial sense.
Operational: The entire LNG project was structured around Qatar Gas as the supplier. On March 17, 2015, Captain Vishal Chaudhary, Head of Marine Terminals, Qatargas, wrote a letter to PSO. The letter states: “The bathymetric charts of January 2015 show depths lower than 13m……which clearly indicates the need for additional dredging….”
On March 13, 2015, the Port Qasim Authority (PQA) wrote a letter to the Ministry of Ports and Shipping. The letter states: “PQA channel width is 200 meters only whereas per LNG Policy 2011/SIGTTO channel width to be 5 times the beam of LNGC” and that “LNGC parameters are more than the PAQ allowed parameters for tankers”.
Additional dredging, to be certain, is going to take plenty of time and an additional expense of around $200 million. What a mess!