'Fast track LPG option should not be discouraged,' CEO Engro Vopak Terminal Limited

Sheikh Imran-ul-Haque is Chief Executive Officer of Engro Vopak Terminal Limited and Vice President of Engro Corporation Limited. He was named to this position in August 2006 and is driving growth initiatives in oil, gas and chemical sectors. Haque is also on the Board of Inbox Technologies and Avanceon Limited.
He began his career at Engro in 1987 upon return from USA. He has held a variety of leadership roles within the Company including General Manager New Venture Division, Mechanical Manager at the fertiliser plant in Daharki and Information Technology Manager at the Karachi Head Office. BR Research: It has been six years since the LNG import plan was originated. Why has it not materialised yet? What are the stumbling blocks?
Sheikh Imran-ul-Haque: Yes it has been long and the LNG world questions Pakistan's seriousness in efforts and plan. As a country, we had a credibility gap earlier, but there is hope now and I believe we can move forward based on the efforts of the Advisor to the PM on P&NR. There were significant elements, without a solution to which, the process would have remained derailed. One was the pricing issue, second related to the project structuring and finally the question of sovereignguarantee availabilitydue to country's credit risk rating.
Based on the efforts of MP&NR, ECC has finally approved an approach, which is correct. More importantly, decisions have been taken and there is now a roadmap to move forward with. On pricing, GoP has decided to consider the weighted average price for the power sector.I believe it is a good decision as addition of LNG will ensure availability of gas cheaper than furnace oil, and will have long term benefits in terms of reduction in power tariff and circular debt. The Weighted Average Cost of Gas (WACOG) is not a new phenomenon and is followed internationally.
It is fair to say that the Ministry of Petroleum and Natural Resources (MP&NR) now realises that there will be no supplies without sovereign guarantee and stand by letter of credit (SBLC). LNG requires long-term agreements of more than 10 years and the GoP must support the contracts. It is disappointing that GOP is not providing guarantees to the private sector. For a competitive environment to evolve, GOP should consider allowing spot cargo purchases by the private sector power units as a next step including inclusion in WACOG.
BRR: What is the next step as the key issues seem to have been addressed at least in principle?
SIH: It depends on what pace MP&NR moves. Secretary MP&NR and Dr Asim Hussain are focused and have committed to early progress of the matter. If we adopt the fast-track approach and provided financial close is achieved by December 2012, Pakistan can have the first molecules of LNG landing in as early as July next year, by using existing jetty infrastructure at Port Qasim. This will result in intermittent supplies of 500 mmscfd every fortnight ie 12 days in a month.
This requires minimal investment or modifications and once executed, SSGC can buy cargoes from the spot market at $11-12 /mmbtu, although two cargoes of 138,000 cubic meters twice a month. This is not a huge quantity, but it will be a starting point from where we all can learn as we build the long-term plans.
We should keep the fast track option ongoing and simultaneously work on building new terminals to brace ourselves for larger import quantities in the coming years. These two years of cargo handling through existing jetties would bide us time to build larger dedicated terminals and will also provide the necessary experience and the negotiating power with international suppliers.The pressure right now is to build a terminal and negotiate simultaneously, which is a tough job for SSGCL.
In the current scheme of things, RFP for integrated project is delayed by three weeks and the fast track RFP has not been issued, but a new RFP for retrofit of existing LPG terminal of SSGCLPG has been issued. We have sought clarity on the timing and approach of GOP. The plans of GOP to directly negotiate contract with Qatar Gas has raised question on the MP&NR's intent as it seems that a new terminal is planned by SSGCLPG with LNG directly imported by it. This will jeopardise the other projects that are planned.
BRR: IPPs and exploration companies enjoy sovereign guarantees. Why not the LNG projects?
SIH: To be able to finance such multimillion dollar projects with multibillion long-term contracts, there must be sovereign guarantees and take or pay agreements, including performance guarantee, in case of cancellation of contract by SSGCL. Without such assurances, any project of this magnitude is not doable. Secondly, weighted average pricing has been the order of the day in the gas and the power sectors; there is no reason why it should be different for LNG.
BRR: What should the private sector's role be in LNG imports?
SIH: It is unfortunate that the private sector is not allowed to import LNG at this time. We believe that GoP will eventually allow Individual Power Producers (IPPs) participation, which will bring competition and efficiency. In addition, the integrated projects are being advertised and if SSGC is interested in developing a terminal, it should compete with the private sector and submit a proposal for transparent evaluation.
BRR: How much will the circular debt be a consideration in your pricing and other issues as your buyer will be the government?
SIH: Yes, that's an issue and a major concern at the moment.The involvement of MDIs is essential and performance guarantees need to be ensured from the government side. It needs to be in place as a deterrent so that the government does not cancel contracts, which have to be water tight as well. I believe that the guarantees will not be finalised in the next two to three months as rigorous work is required and with the elections due in March, time might not be on our side to complete the process during the next quarter. MoF has a significant role and needs to be proactive for timely execution of the projects planned.
If the government restricts the LNG to the public sector then I am afraid it will further get delayed. More importantly, transparency in the whole process from bid to evaluation needs to be ensured so that we donot end up with courts second time around.
BRR: Is the Port authority supportive in terms of speeding the process and providing the necessary infrastructure?
SIH: We are in final negotiations and are very comfortable with PQA. The PQA Chairman has been facilitating us with various stakeholders. The Ministry of Ports & Shipping has a key role to play in expediting the process and has done so selflessly. Babur Ghauri has been very supportive from day one.
BRR: Does the local manpower have the required expertise and skillset to handle LNG?
SIH: The key experience is to handle the LNG ships and our Port Qasim pilots are very good at it. Port Qasim has the experience of handling large vessels and difficult products. We have done the environment study; have completed the QRA and obtained all the required licenses - so expertise is not an issue. If at any stage, we feel the need of specialised training, we would obtain it, but based on the development work done we have the bases pretty much covered in this regard. The FSRU will be operated by international crew to be replaced partially by skilled Pakistani crew.
BRR: There is a debate going on that when the US has gas as cheap as $3/mmbtu, why does Pakistan not import that instead of pursuing LNG. What are your views on that?
SIH: The government has taken a step and has reportedly signed MoUs in this regard, but this is not a near-term solution. It is doable for Pakistan but Pakistan does not have an FTA with the US, which is an obstacle and needs to be raised with the US government so that non-FTA countries are allowed export licenses.
The first terminal will not be online before 2016, and we cannot wait this long and do nothing. By the way, the gas from US will roughly cost around $11-12/mmbtu, contrary to the perception that it will be $3-4/mmbtu, as the premium, processing and shipping costs need to be added.