LNG

Capital suggestion
The three things missing in the ‘Sale and Purchase Agreement’ between the Pakistan State Oil Company Limited (PSO) and Qatargas Operating Company Limited are: price, quantity and expiration. What that means is that we haven’t really bought any LNG on a long-term basis. What that really means is that we will be buying LNG on spot basis (a spot contract is the buying or selling of a commodity on the spot date which is normally two business days after the trade date).
On March 26, the first shipment of 147,000 cubic feet of Qatari LNG arrived at the Karachi anchorage but the Ministry of Petroleum and Natural Resources was willing to disclose neither the price nor the buyer. Later on, the media was told that two private sector entities were the buyers. Later on, the media discovered that the payment for the first shipment was made by PSO. Later on, the media was told that the price paid was $8 per mmBTU (FOB).
For the record, when we bought our LNG for $8 per mmBTU the price of spot LNG stood at $6.90 per mmBTU. For the record, we overpaid a sum of $3 million for our first shipment.
Back to Pakistan, a price of $8 per mmBTU, after freight plus re-gasification, port handling and wheeling, would fall within $11.50 per mmBTU to $12.50 per mmBTU (may be even higher). Ironically, generating power after buying LNG at $11.50 per mmBTU to $12.50 per mmBTU will be much more expensive than generating power from fuel oil.
Imagine: the current natural gas average price in Pakistan is $2.90 per mmBTU. Imagine: natural gas from the proposed Iran-Pakistan gas pipeline will cost around $6 per mmBTU (as oppose to $12 from Qatar. President Xi Jinping is willing to build the pipeline).
According to the Ministry of Petroleum and Natural Resources, the first LNG shipment has been imported by private sector entities. Here’s my issue: Now that Pakistan’s private sector has proven its capability to import LNG then why does the Government of Pakistan want to get involved in future LNG imports? Please let the private sector do it. Obviously, if the private sector starts importing LNG then critics like me will be thrown out of the business of criticising.
Twenty-one years ago, the Government of Pakistan, under the 1994 Power Policy, signed up a dozen Independent Power Producers (IPPSs). Twenty-one years ago, the Government of Pakistan, under the 1994 Power Policy, signed up 15 to 30-year contracts. Over the past twenty-one years, the Government of Pakistan has lost a good Rs2 trillion. Imagine, the LNG contract has no expiration; it is to be used in perpetuity.
According to Transparency International Pakistan (TIP), the“$22 billion LNG deal being finalized with Qatar at exorbitantly high cost is sheer violation of the PPPRA rules.”
Imagine: Engro will recover all its $150 million investment on the LNG terminal in just 18 months-an annual rate of return of 65 percent. Imagine, the ECC has exempted the privately-owned terminal from taxes but imposed a 17 percent tax to be recovered from consumers.
Worldwide best LNG practices recommend a four-component regime. One, let the private sector do it. Two, economies should promote ‘free and open markets to set the price across the LNG value chain’. Three, economies should promote ‘competition and anti-monopolistic behaviour’. Four, legal frameworks should be ‘clear and transparent’.
Here’s what the Ministry of Petroleum and Natural Resources promotes: One, a cloudy and a non-transparent legal framework. Two, non-competitive, monopolistic behaviour. Three, non-market based setting of prices across the LNG value chain. Four, the public sector doing it all.

The writer is a columnist based in Islamabad. Email: farrukh15@hotmail.com
Twitter: @saleemfarrukh