ECC okays LNG import agreement

Gas purchase from Azerbaijan will help bridge energy shortages

Shahbaz Rana June 15, 2023
Due to high prices, lack of financing and weak credit rating, Pakistan has been struggling to buy spot LNG cargoes. Photo: file


Pakistan on Wednesday approved a one-year framework agreement for import of liquefied natural gas (LNG) from Azerbaijan, in a move that would help minimise energy shortages besides cementing bilateral relations.

The Economic Coordination Committee (ECC) of the cabinet approved the pending framework agreement hours before the start of a two-day visit of Prime Minister Shehbaz Sharif to the Central Asian Republic.

The ECC considered a summary of the Ministry of Energy on the framework agreement between Pakistan LNG Limited (PLL) and State Oil Company of Azerbaijan Republic (SOCAR) Trading, according to a statement issued by the finance ministry.

The framework agreement has been approved for one year and can be extended for another year, according to the energy ministry. Pakistan can import one cargo per month but the price will be determined and agreed every time Azerbaijan makes an offer.

SOCAR will offer LNG cargo 45 days prior to the start of the relevant delivery window and each offer for the cargo will have a set validity period during which PLL may accept the offer.

The price will be offered in American currency for each cargo with a “quantity of 3.2 million MMBTU”. Pakistan will make payment within 30 days.

The Letter of Credit confirmation charges will be on sellers’ account, according to the approved framework agreement.

Each cargo offer will also include the applicable demurrage rate expressed as a fixed amount in US dollar per day and pro rata for each part of a day.

PLL and SOCAR will sign a confirmation notice at the time the offer for any cargo is accepted by PLL.

“The ECC directed the Ministry of Energy to determine our need for LNG at least three months in advance on a rolling basis,” said the finance ministry.

Pakistan State Oil (PSO) and PLL are importing LNG under long-term supply contracts to minimise the demand and supply gap under three different deals with Qatar and a European company.

The first long-term agreement had been signed by PSO with Qatargas in 2015 at 13.37% of Brent price for five cargoes per month for 15 years, which is ending in 2030.

The second PSO-Qatargas agreement was inked in 2021 at 10.2% of Brent price for 10 years, according to which Qatargas is to supply three cargoes every month from July 2022 to December 2023 and four cargoes per month from January 2024 to December 2032.

PLL and Eni also signed an agreement in 2017 at 12.05% of Brent price, according to which Eni is to supply one cargo per month for 15 years.

In addition, PLL has been importing up to three LNG cargoes a month through spot tenders.

However, due to high prices, lack of sufficient available financing and weak credit rating, Pakistan has been struggling to buy these cargoes.

An Inter-Governmental Agreement (IGA) was signed between Pakistan and Azerbaijan in February 2017 for cooperation in the field of energy. PLL, SOCAR Trading and its subsidiaries have been nominated to negotiate necessary contractual details of the LNG project.

The framework agreement summary had earlier been presented to the ECC on multiple occasions. Owing to disagreement between the Petroleum Division and former PM Shahid Khaqan Abbasi, the ECC had deferred approval of the framework agreement.

There are no financial obligations or take-or-pay commitments if Pakistan does not buy any cargo from Azerbaijan. However, LNG may only be procured under the agreement if an attractive price is offered or expensive LNG is desperately required as a last resort.

Since the validity of the price offered by SOCAR will be less than 24 hours, the PLL board has been given the mandate to accept or reject LNG cargoes based on suitability of the price.

The ECC also approved Rs404.8 million in supplementary grant for the Cabinet Division for the repair of helicopters used for relief operation and VVIP movements.

It approved Rs157.7 million in additional funds in favour of the Ministry of Industries and Production for the payment of salaries of Heavy Electrical Complex (HEC) employees, markup to the Bank of Khyber, and meeting operating expenses.

It directed the Privatisation Commission to complete the HEC privatisation process by June 30, 2023.

Published in The Express Tribune, June 15th, 2023.

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