Pakistani Watchdog Calls Qatar LNG Deal "Non-transparent"
The Pakistani competition watchdog has called the long-term government-to-government LNG deal between Islamabad and Doha “non-transparent” and has asked the government to make the details of the deal public.
“There is lack of transparency in the long-term G2G [government-to-government] agreement between PSO [Pakistan State Oil] and Qatargas as to when the terms of the contract may be renegotiated,” the Competition Commission of Pakistan (CCP) said in a report published November 15.
The CCP pointed out that there was a lack of clarity about the price review clause and when pricing can be renegotiated. It also stated that, while the LNG sales and purchase agreement (SPA) is available on the official website of PSO, most of the document is inaccessible to the public.
It recommended that the government should look at renegotiating the LNG deal and that some of the standard features of the sale and purchase agreements (SPAs) should also be revisited.
“Contrary to globally-traded natural gas prices, Pakistan’s LNG SPAs are indexed to the Brent price which has been on the rebound of late, meaning a higher LNG DES [Delivered Ex Ship] price to be paid by the LNG importer. In the face of global oil market volatility some of the features of standard SPAs like “Take or Pay” and “Contract Price Review” need to be revisited. These features are seen to be “restrictive” and potentially “divergent” from market forces of demand and supply,” the CCP said.
The CCP also said that if the price review period could be negotiated to a shorter term, then the disparity between contract and competitive prices could be reduced, as it would be closer to prevalent market prices.
PSO and Qatargas signed a 15-year long term SPA for supply of 3.76 million metric tons/year of LNG in 2016 at the contract price of 13.36% of the Brent price. Pakistan also has a second long-term deal signed between Pakistan LNG (PLL) and Italy’s ENI. The Italian company will supply 0.75mn mt/yr of LNG. In both the SPAs, a price review for the contract is due after 10 years.
The CCP said that some of Pakistan’s long-term agreements are based on rising ‘slopes’ that need to be renegotiated. “Given the current state of oil prices, this could be extremely costly and thereby strain our reserves further. Therefore, some of these agreements may need to be re-evaluated in the light of crude oil price trends,” it said, adding: “...due to the global Brent price trend many LNG importing countries are renegotiating the DES price to a lower slope.”
The CCP also said that Pakistan must fully utilise the capacity of its two import terminals at Port Qasim, near Karachi and that port charges need to be ‘competitive’. The LNG received at Port Qasim is regasified at the Engro Elengy terminal and Pakistan Gasport Consortium terminal at the tolling tariffs of $0.479/mn Btu and $0.4177/mn Btu respectively. Additionally, the Port Qasim Authority charges an amount of $600,000/LNG vessel received at Port Qasim.
“Higher port charges result in a higher price of LNG and therefore a higher price of RLNG [regasified LNG] which is ultimately paid by the end consumer. It is therefore recommended that the port charges should be competitive and comparable to other regional players procuring LNG,” CCP said in its report.
Pakistan started importing LNG in 2015. However, in recent months there have been lot of voices calling for review of the PSO and Qatargas deal. The Federal minister for petroleum and natural resources, Ghulam Sarwar Khan, said August 29 that the National Accountability Bureau (NAB) was actively probing the LNG supply agreement reached between PSO and Qatargas; the NAB approved the probe in June this year. Sarwar said that if any evidence of irregularity, such as a violation of the Public Procurement Regulatory rules, was found, the government would seek to renegotiate the agreement
Pakistan’s Senate Standing Committee on Petroleum is also looking into the deal and in June sought full details of the Qatar LNG deal from the country’s petroleum ministry.