PLTL-PGPCL agreement: Cabinet decides to go through rules prior to taking final decision

ISLAMABAD: The federal cabinet has decided to go through Third Party Access Rules prior to taking a final decision about termination of agreement between Pakistan LNG Terminal Limited (PLTL) and Pakistan Gas Port Consortium Limited (PGPCL), well-informed sources told Business Recorder.

On June 23, 2020, the federal cabinet ratified the decisions taken by the Cabinet Committee on Energy (CCoE) on June 20, 2020 but deferred the case of dispute between PLTL and PGPCL till its next meeting.

Official documents reveal that the Petroleum Division told the CCoE that Government Holdings (private) Limited (GHPL) is a 100 per cent owned company of Government of Pakistan under the administrative control of Ministry of Energy (Petroleum Division). Pakistan LNG Terminals Limited (PLTL) and Pakistan LNG Limited (PLL) were incorporated in December 2015 as 100 per cent owned subsidiaries of GHPL in pursuance of ECC's decision of November 25, 2015. The mandate of PPL was to import LNG while, of PLL was to develop and manage LNG re-gasification terminals.

For establishment of 2nd LNG terminal, PLTL entered into an Operations and Services Agreement (QSA) on July 1, 2016, with PGP Consortium Limited (PGPCL) for a term of 15 years to provide and perform LNG services for PLTL.

Due to PGPCL's failure to meet their contractual deadlines to commence commercial operations on the commercial start date( July1, 2017), PLTL on September 25, 2017 imposed Liquidated Damages (LDs) to the tune of $ 30 million. PGPCL gave revised commercial start date of November 28, 2017. Again on account of failure to start commercial operations by new scheduled commercial start date( November 28, 2017) PLTL on February 26, 2018 imposed additional LDs of $11.1 million till actual commercial start date( January 4, 2018) as per the agreement besides imposing $ 9.485 million on account of gross negligence and willful misconduct of PGPCL.

The parties (PGPCL and PLTL) entered the dispute resolution. Clause 37 of the OSA provides that any dispute between the parties must first be referred to Authorized Representatives (ARs) for amicable settlement within 90 days and if the dispute is not settled amicably through ARs then the dispute would be finally settled through binding international arbitration by the London Court of International Arbitration (LCIA). The dispute ended in February 2020 without resolution. In the matter, on March 4, 2020, PGPCL filed Request for Arbitration (RFA) No.204638 at LCIA. PLTL filed a reply on Mary 7, 2020. Due to delay of more than one year in provision of adequate assurance of performance (financial guarantee of $ 15 million), PLTL terminated the QSA on October 14, 2019. PGPCL again opted for dispute resolution, which ended on January 23, 2020 including extension period of ten days. PGPCL on 22nd January 2020 filed Arbitration Petition in the Islamabad High Court praying the Court to refer the matter to international arbitration. On 3 January 2020, PGPCL also filed Request for Arbitration No.204593 at LCIA for arbitration. PLTL filed a reply to this RFA on 3rd April 2020. Pending Dispute Resolution, parties are obligated to perform their respective obligations thus ensuring continuity of operations of the Terminal. The Attorney General's Office through its letter dated 7th April 2020 appointed FGE Ebrahim Hosain (FGE) as a legal counsel for both arbitrations.

Petroleum Division also said that the summary was submitted to the Cabinet Committee on Energy (CCoE)on 26th March, 2020. CCoE in its meeting in April, 2020 (case No. CCE-10/3/2020), directed the Petroleum Division to resubmit the case, in the next meeting, after obtaining legal opinion/advice from: (i) the Attorney General for Pakistan on the issue of International arbitration in the matter; and (ii) Law and Justice Division on the fundamental legal position of the case. As per directions of the CCoE, the Petroleum Division took up the matter with Law & Justice Division and Attorney General for Pakistan. The Attorney General for Pakistan stated that it would not be appropriate for their Office to comment on a matter pending adjudication and legal submissions, and testimonial and expert evidence of which their Office was not aware. AG's Office further stated that the Petroleum Division may, if it wishes, obtain a detailed opinion from the panel of lawyers already engaged in the matter. Ministry of Law & Justice also endorsed the viewpoint of the Office of the Attorney General for Pakistan.

Legal opinion has been obtained from the FGE Ebrahim Hosain which purportedly does not give a clear-cut position on either issue and highlights both the strengths and the weaknesses. The issue was again discussed in the CCoE meeting on June 4, 2020 in which the CCoE was informed that the two cases had been consolidated by LCIA, over-ruling the GoP position to keep them separate. In light of this negative development, the resolution on whether Third Party Access (TPA) is made effective has become critical. CCoE directed Ministry of Energy (Petroleum Division) to obtain legal opinion and come back with specific recommendations. The legal opinion has been obtained from the firm and the advice is that TPA can be activated without risking the position of PLTL on the merits of the main case as long as all communication related thereto is labelled "without prejudice".

It was recommended that (i) a smaller sub-committee be formed, including the Attorney General for Pakistan, to decide the future course of action on the legal front with a timeline of 15 days; and (ii) PLTL, PLL, SSGC, and SNGPL be authorized to proceed with IPA safeguarding the interests of the government entities while ensuring policy implementation on TPA.

The Cabinet Committee on Energy (CCoE) considered the summary of June 18, 2020 submitted by the Petroleum Division regarding Dispute Resolution and Termination of Agreement between Pakistan LNG Terminal Limited (PLTL) and Pakistan Gas Port Consortium Limited (PGPCL) and approved the proposal with the direction that the Third Party Access Rules should be annexed to the summary, at the time of presentation to the Cabinet. Petroleum Division was directed to hold consultations with the relevant stakeholders and come up with a viable recommendation on the future course of action.