London Court of International Arbitration (LCIA) has validated Sui Northern Gas Pipeline Limited (SNGPL) stance against Quaid e Azam Thermal Power (Private) Ltd. (QATPL) over latter’s failure to offtake the take-or-pay quantities of Regasified Liquefied Natural Gas (RLNG) as per Gas Supply Agreement (GSA).
A senior official of the company said on Friday the LCIA Arbitrator delivered its arbitral award over dispute between QATPL and SNGPL regarding the non-offtake of the take-or-pay (contractual quantities) of RLNG by QATPL).
As per arbitral award in favour of SNGPL, the arbitrator has held that SNGPL has rightfully en-cashed the security deposits held by it and has directed the QATPL to replenish the same as per the contractual requirements.
The significant portion of the related litigation and arbitration costs are also held to be borne by QATPL.
It is pertinent to mention that under the terms of the license granted to SNGPL by OGRA, in line with the decision of ECC and the tariff regime in vogue, the arbitral award under discussion will not impact the profitability of the company as the revenues billed to QATPL have already been treated as an operating revenue.
It may be noted that SNGPL initiated arbitration proceedings on October 11, 2019 by filing the request for arbitration with the London Court of International Arbitration.
According to QATPL, receivables from SNGPL amounted to Rs3.3 billion and represented amount withdrawn from the escrow account by SNGPL in June 2018. For the period from May 2017 to June 2019, SNGPL raised total net invoices of Rs9.325 billion for take or-pay gas for several months. These invoices were disputed by QATPL because, as per the GSA, take-or-pay is applicable on firm gas allocation pertaining to each month.
According to an assessment, only for firm gas allocation, Annual Delivery Plan (ADP) was required to be shared with SNGPL.
ADP was finalized and confirmed on August 20, 2017 for the period starting from 01 January 2018 to 31 December 2018. Accordingly, any claim of take-or-pay prior to 01 January 2018 was unjustified, claimed QATPL.
According to QATPL, SNGPL did not confirm with evidence that RLNG was available to SNGPL for delivery in the period for which take-or-pay bill has been issued.
Moreover, SNGPL has applied the average RLNG rate/mmbtu and average domestic rate/mmbtu for each month, whereas the actual rate was to be applied on any take-or-pay quantity.
To resolve the issue and pursuant to dispute mechanism, SNGPL’s request for arbitration with the London Court of International Arbitration will be final and binding upon the parties.
