SATURDAY DECEMBER 08: Sovereign guarantee in LNG import: government decides to solicit support of multilateral agencies

ISLAMABAD: The government has decided to solicit support of multilateral agencies to back up the government sovereign guarantee in LNG import. Sources said the government has decided to import LNG through open competitive bidding by providing level playing field to all the parties and following Public Procurement Regulatory Authority (PPRA) rules.
The approved framework proposed long term LNG import under integrated project structure for 400 MMCFD with delivery at SSGC receiving point through open competitive bidding following PPRA rules and providing level playing field to all the parties may it be new entrants or to whom construction licenses have been issued. The bid will be evaluated on the basis of gas price at Sui Southern Gas Company (SSGC) delivery point. The contract will be for 10 years with 5 years price review clause.
The second round of long-term LNG import under integrated project structure for 400 MMCFD, similar to the first one, would be advertised within four weeks of receipt of bids for the first long-term LNG project following the above procedure. By Special Purpose Vehicle (SPV) -a subsidiary company of SNGPL/ SSGC where government may also have share.
Under the fast track import on tolling basis for 200 MMCFD, the LNG will be procured by SPV from international sources through any of the three approaches allowed under section 3.2 of the LNG Policy, 2011 ie direct negotiations, competitive bidding or spot purchases to be done by SPV depending on its commercial needs. To handle LNG/ RLNG delivery to SSGC's receiving point, the SPV will invite proposals for setting up terminal for tolling from interested parties including existing terminal holders, if needed in case SPV's own terminal is not feasible.
The government will also take an equity share in SPV for which the funds from Gas Infrastructure Development Cess (GIDC) will be used. Independent directors from the private sector will also be included in the Board of Directors of SPV, on behalf of government. The gas utility companies will open revolving standby letter of credit up to three months' value of RLNG/ LNG to guarantee gas off takes, which shall be backed by government sovereign guarantee for all projects.
The LNG users mainly the power sector will establish letter of credit for three months' LNG value to back up the gas utility companies' letter of credits. The support from multilateral agencies would also be solicited to back up the government sovereign guarantee. The international consultant will assist in the entire process for import of LNG/ RLNG for both the tolling and integrated projects to ensure transparency and best international practices.
The RLNG will be supplied to public and/ or private sector bulk consumers meeting energy efficiency criteria, to be approved by cabinet/ECC, under firm contracts with take or pay clause against revolving confirm letter of credit. The gas utilities will transport RLNG to the consumers only through transmission and high-pressure distribution network duly isolated from their spaghetti gas distribution networks.
The gas pricing for RLNG buyers (mainly power sector) will be determined on weighted average selling price of the respective sectors. The cost of RLNG will not be passed on to other consumers. The cost of RLNG will be factored in weighted average cost of gas of the two utility companies as per existing arrangement. However, the RLNG volumes and price will not be considered for UFG benchmarking / disallowance calculations. Any financing cost for LNG/ RLNG purchase will be allowed as admissible expenditure under the revenue requirements of the Gas utilities. The suitable amendments will be made in Oil and Gas Regulatory Authority (OGRA) rules to facilitate import of LNG, the framework concluded.