M/s Qatargas has reportedly linked supply of 5 cargoes of LNG to Pakistan State Oil (PSO) with the signing of Supply Purchase Agreement(SPA) which is expected to be inked today (Thursday) in Doha, official sources told Business Recorder. PSO officials held several meetings with Qatargas2 (QG2) to finalise the agreement after incorporating changes.
On January 12, 2016, PSO in a letter to Petroleum Ministry stated that in the light of ministerial meeting in Doha certain further changes have been made in the draft SPA by Qatargas to accommodate the following principal changes: (i) a further reduction in price;(ii) Port charges: wording to provide for the seller to pay the full charges and invoice PSO for anything in excess of $320,000. PSO is seeking to negotiate a right to recover from QG2 any difference in case the port charges are less than $320,000; (iii) supply period remains 15 years but is from 2016 to 2031 (ie one year added); (iv) increase in volumes from 1.5 mtpa to 2.25 mtpa (pro rata to the remainder of the year) in 2016 and 3 mtpa to 3.75 mtpa from ramp up; (v) an increase in the SBLC value from 2 to 3 cargoes when the volume is equal to or less than 2.25 mtpa and from 5 to 6 cargoes when the volume is equal to or greater than 3.75 mtpa; (v) the ramp up will occur in Q2 of 2017 but PSO has the option whether the ramp up will occur in April, May or June (with June being the default in case the right is not exercised for April or May or PSO does not notify the seller by September 1, 2016 when it requires the ramp up). Previously, PSO had a ramp up right (exercisable in 2016) to ramp up to 3 mtpa for Contract Year 2017 with an automatic ramp up to 3mtpa in contract year 2018; and (vi) payment is to be made 15 days after completion of unloading or 10 'banking days' after receipt of invoice (whichever is later) rather than the 10 days and 5 'banking days' respectively.
On a thorough review some corresponding or clarificatory changes may be made but will not affect the substantive terms of the attached draft. Official documents reveal that in view of the fact that the tripartite agreement has not yet been signed and all the conditions to the effectiveness thereof contained in the Side Letter to the tripartite agreement have not been satisfied as yet and in view of the lead time involved in establishing the relevant SBLCs, PSO has requested Qatargas to arrange supply of 1 cargo in January 2016, 1 cargo in February 2016 and 3 cargoes in March under the SPA on advance payment. If Qatargas agrees, this will be done through a side letter along the lines identified in our letter of October 15, 2016, but Qatargas has indicated that the SPA would need to be signed expeditiously before they would consider the request.
Qatargas has suggested that once the PSO team completes its thorough review of the SPA, they can discuss the way forward in terms of the expected execution date, the side letter to the SPA, the date of placing the SBLCs and the ADP for 2016. According to PSO, it is also critical that the Tripartite Agreement (TPA) and its Side Letter (both of which are in agreed form) be executed and effective on an immediate basis. Whilst MPNR is aware of the decisions which need to be taken, these are repeated below for ease of reference:
Necessary decisions by the Economic Coordination Committee of the Cabinet, the Cabinet Committee on Energy and/or other competent authority (GOP Decisions) provide for the following: (i) issuance of a policy directive to the effect that PSO (as the LNG buyer under an unbundled project structure under the LNG Policy 2011 does not have to enter into an agreement with a terminal operator for LNG receiving, storage and re-gasification services, that PSO may sell LNG to the Gas companies or other bulk purchaser of LNG and that PSO shall have no responsibility for blending/ dilution of RLNG to provide PSO with regulatory coverage to address inconsistencies between the LNG Policy and the structure of the arrangements relating to the sale and purchase of LNG;(ii) authorisation for PSO to execute the SPA and if required a side letter to the SPA; and (iii) port charges in excess of $320,000 (being the maximum payable by QG under the SPA) will be paid by PSO and this component will form part of price of RLNG/Swapped Gas to be determined by OGRA and to be notified by PSO. The excess amount will be the difference between port charges notified by PQA and $320,000.
Determination by OGRA of the first price for RLNG/ swapped gas has been made. The provisional price is being requested by SSGC, SNGPL and PSO. In PSO's opinion the revised determination needs to be in place prior to the first 2016 Cargo arrival. Approval of the duration of the SPA by OGRA is required in the LNG Policy. PSO further suggested finalisation and approval by Ministry of Finance of the payment mechanism SOP proposed by PSO and the gas companies. This should include coverage for PSO's exposure to QG in respect of the standby letter(s) of credit to be provided under the SPA to the extent not met by the SBLCs provided by the gas companies pursuant to clause 9.5 of the TPA. In the absence of approval of the payment mechanism as suggested by PSO, clause 9.5 of the TPA will need to be amended to provide adequate coverage to PSO. The SBLC needs to be in place by January 31st 2016.
PSO further sought provision of irrevocable SBLC(s), on the format to be agreed, by SNGPL to PSO payable on first call of the value equivalent to minimum of two cargoes LNG sales price in the beginning and coverage for remaining exposure of PSO through the payment mechanism. However, now that the SPA SBLC requirements have been increased, the corresponding increases will be requested from the relevant parties locally. It has also sought provision of an irrevocable SBLC(s) by IPPs to SNGPL payable on first call basis for subsequent provision of SBLC(s) by SNGPL to PSO.
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