Owing to serious legal risks, the board of directors of the state-run Sui Southern Gas Company (SSGC) on Friday rejected Engro Elengy Terminal (EET) upgrade to a bigger floating storage and regasification unit (FSRU) and instead recalled original unit — Exquisite — back to work.
The Exquisite FSRU operated by Excelerate Energy of USA had been on dry docking since June 29 for repair and was replaced by a larger FSRU Sequoia since then to ensure LNG supply.
The Petroleum Division and the EET had been trying to retain the Sequoia terminal, having greater re-gasification capacity, on the premise that this would reduce gas shortage in coming winter months. However, this did not materialise as the SSGC board and management were not ready to accept demands to give up legal rights under old contract and increase financial exposure in view of their previous experience that landed many of its executives in National Accountability Bureau custody.
“The board of directors after due deliberation considering the legal, commercial and financial exposures decided that this transaction cannot be undertaken in lieu of the potential exposure and risks,” announced the SSGC after the board meeting.
Board chairperson Dr Shamshad Akhtar recused to attend the meeting for conflict of interest as she was also on Engro’s board. A couple of other board members were reportedly asked by influential government officials to also excuse but they attended.
When approached for comments, Engro said it was “still awaiting an official response on the matter. Regardless of the response, Engro is prepared and will work with all stakeholders for a smooth way forward for all”, adding it would not comment further.
The SSGC said that Ministry of Energy had advised it to “evaluate the option to replace FSRU Exquisite with a larger size FSRU Sequoia in order to have additional regasification capacity. However, the SSGC after undergoing a proper due diligence has concerns as this would lead to serious exposure and risks for SSGC”.
It also confirmed that the EETL was asking the SSGC to forego its step-in right in case of operators’ default and also waive its option to purchase the FSRU but put on record that “this would be a violation of the LSA (LNG supply agreement) and expose SSGC to potential future risks”.
It also noted that clearance of NAB would be vital. Also the PPRA is not being followed which too can point towards preferential treatment to one terminal operator whereas the other terminal too has surplus capacity available.
Moreover, SNGPL and PSO have not yet committed for utilising the additional capacity and availability of additional LNG cargoes, the SSGC said. “It was agreed that clearance from cabinet to initiate negotiations would be needed besides NAB’s clearance. These matters were referred to SSGC board for guidance”, it said, adding the board had decided that this transaction could not be undertaken due to the above mentioned risks.
A senior government official said the Exquisite FSRU, after repair, was laden with LNG to move from Qatar and was expected to dock at Port Qasim on Sept 10-12 to replace Sequoia. Until then Sequoia would continue regasification.
In response to Engro’s letter to the government for continuation of Sequoia with the conditions noted above, the Petroleum Division separately wrote to Engro that LNG operations and Services Agreement (LSA) was executed between the EETOL (operator) and SSGC (the customer) which was related to the operation of LNG services infrastructure and provision of LNG services.
“Since it is a bi-party commercial and performance relationship where both parties have defined rights and obligations, therefore, subject needs to be mutually resolved between the parties,” the Petroleum Division told Engro.
Meanwhile, a government official said Pakistan LNG Ltd (PLL) had accepted three bids for LNG cargoes for delivery between Oct 28 to Nov 12, all at rates above $20.3888 per mmBtu, received through urgent tender.
