Facing $0.272 million daily penalty: government yet to sign import deal for LNG terminal

The LNG terminal, which the federal government got constructed by Engro Elengy Terminal Limited (ETPL) at the cost of $135 million on a 'fast track' basis is going to become a liability for the federal government. The ETPL, a subsidiary of business conglomerate Engro Corporation, has readied the LNG terminal to handle by March 31 the long-awaited imported liquefied natural gas (LNG), the federal government is yet to sign a formal procurement deal with its foreign business partners.
As per its agreement with Engro, the resource-constrained federal government would have to pay $0.272 million per day for not importing the LNG by March 31. "The government has so far virtually failed to ink an LNG deal with any country, including Qatar," said Shaikh Imran-ul-Haq CEO of ETPL in a statement issued on Tuesday.
He said ETPL's $135 million LNG terminal was ready to start up "provided the government strikes a gas import deal". "The terminal has been completed in a record time and now we are waiting for the government to finalise LNG procurement deal," said Haq. "If the commodity is not delivered by March 31, the government would be liable to pay the capacity charges," he added.
The FSRU Exquisite, the floating storage and re-gasification vessel is anchored at Dubai Dry docks and would be ready to make sail by March 15. The industry is abuzz with the rumours that international dealers were hesitant to supply LNG to Pakistan for power sector which was virtually hit by circular debt and IPPs were not willing to make an agreement with LNG supply for back-to-back L/Cs.
Talking about their bid regarding second FSRU terminal at Port Qasim, Haq said they were hopeful about the result. He said LNG import was inevitable for the country as it would address several energy shortage issues. "Given the energy demand of the country, only LNG import would not be sufficient. Pakistan will have to import other commodities also to streamline its energy mix," he added.
Engro's LNG terminal is completed even before the financial close. Engro Corp funded this project under bridge loans. However, recently Asian Development Bank (ADB) has approved a $30 million project loan for the terminal. Haq informed that the money would be transferred to them by early next month, which would have to be retired in 8-10 years. Along with ADB's loan, International Finance Corporation is expected to fund 15 percent of the project cost and local banks will finance around 35 percent. The rest of the project financing will come from equity proceeds, for a total cost of around $135 million.
The fuel, suitable for use at most of the country's combined cycle power plants, will be supplied to Sui Southern Gas Company's gas distribution network via a new high pressure pipeline. The plant has the capacity for re-gasification of up to 600mmcfd. The government had tendered for its requirement of 200mmcfd but Engro has developed a surplus capacity set-up. Engro is in negotiation with other parties for the utilisation of its surplus capacity.
SSGC has tendered for another terminal at Port Qasim, while a consortium of three investors is developing plans for another facility in nearby Karachi. Pakistan urgently needs to utilise its existing power generation capacity fully, while reducing its reliance on costly imported diesel fuel for electricity generation.
Re-gasification of LNG will allow generation facilities to reach their maximum potential, using a cleaner and more efficient fuel, and will support the country's push for greater energy security and diversification. The converted fuel will help the government make an estimated savings of about $1.0 billion per annum on its current fuel import bill of nearly $15 billion.