PSO clarification

Apropos the news items that appeared in Business Recorder on 25th September 2017, Pakistan State Oil (PSO) would like to clarify the facts that the redacted version of Long Term Sales Purchase Agreement (SPA) executed with QatarGas under Government to Government (G to G) arrangement is available on PSO website. The fully executed version cannot be uploaded due to confidentiality provisions in the agreement. However, after consent obtained from QatarGas, the redacted version of the SPA was uploaded.
It may be noted however that the copies of fully executed versions of SPA are available with concerned Government authorities to whom PSO is required to provide these documents as per statutory requirements. Adherence to contractual terms is essential as LNG contracts worldwide with producers are not in the public domain. Moreover, other than SPA, the Tender Documents floated against Open Competitive Tenders, including MSPA and Confirmation Notice, where PSO does not have any limitations of Confidentiality; are available in public domain.
It has also been incorrectly stated in the referred news articles that the SPA with QatarGas was not presented for any meaningful debate within the Government authorities. The fact is that Ministry of Petroleum and Natural Resources was authorized by ECC to engage in negotiations with Qatargas on G to G basis for import of LNG. As a result, the price and key commercial terms of the agreement were negotiated by Price Negotiation Committee (PNC).
The PNC was constituted by ECC of the Cabinet and convened around thirteen meetings to deliberate and finalize the key commercial terms including Price, Term, Quantities, Payment terms etc. The committee was supported by the international Legal and Commercial Consultants provided by Government of Pakistan through USAID.
On the basis of the recommendation of consultants and internal discussions, the final set of recommendation was placed by PNC before ECC for approval at 13.9% slope. MPNR further took the initiative and effort was successfully made to reduce the slope percentage by around 0.50 % of Brent (mean) to the final agreed percentage in the SPA.
As earlier pointed out, Long Term Agreements are usually confidential between the parties thus comments on price of long term contract of India cannot be made with certainty. However, in the news article itself it is mentioned that the Indian price is 13.9% of the Brent which is higher than the Pakistani price. Moreover, the price of recently concluded contract between Petrol Bangla of Bangladesh and Qatar is also reported in the market reports as higher than Pakistan; at 12.6% indexation to a 90 days average of Brent Crude plus US$ 0.50/ MMBTU constant. On current Brent Prices, this comes out around 13.61%.
It is also a fact that countries have generally initiated LNG imports with long term contracts and then built on the experience to buy on Spot and Short Term. Pakistan has similarly experienced buying cargoes on monthly basis by adhering to PPRA rules and it saw significant price fluctuations including a period where bidders did not bid leaving the country exposed to terminal charges including uncertainty in supplies to IPPs. The effort was then diverted to 5 year contracts and based on the success in placement of Pakistan on the LNG world map, the number of bidders significantly increased and the results were visible in the two contracts awarded for the second terminal.
Furthermore, unlike Oil trade, major proportion of LNG is still sold under Long Term Contracts. The cargoes supplied on spot basis cannot be compared with the long term contracts as the market dynamics of the two are entirely different. This is because of the fluctuation of prices in Spot Market which is dependent on many factors like demand and supply situation, global weather conditions, maintenance of LNG plants, geopolitical situation, freight elements, port charges, country specific business conditions, payment terms and LNG volumes etc. Traders have in recent years started to involve themselves in spot supplies whereas producers continue to undertake long term contracts.
Moreover, there is a lag of three months in the price of Long Term Sales Purchase Agreement in comparison with the spot prices which are based on prevailing Brent/ Crude Oil prices whereas the Long Term arrangement takes into account the average value of Brent of three preceding months which further makes it not possible for comparison. The recent tender floated by Pakistan LNG Ltd (PLL) for deliveries of 4 LNG cargoes during December 2017 fetched bids ranging from 13.98% to 15% of Brent, which is way above the Long-Term Contract price.
The success of LNG has been proven beyond doubt and the competitive pricing evolving is an achievement of the pioneers who implemented transparently the fast track energy solution to provide fuel to the growing needs of the country. It is easy to forget what the situation would be, had LNG not been introduced in the supply chain 30 months ago.