EDITORIAL: Ironically, some sections of media and the Ministry of Petroleum are playing ping-pong on the RLNG pricing and its imports. However, both the sides are using the numbers of convenience. The issue is unnecessarily being sensationalized while right questions are not being raised. What Ministry is unable to explain is why they ran power plants on Furnace Oil (FO) and diesel when 'cheap' RLNG was an option in summers. What media is not asking is why the RLNG pipeline has not been built. Why didn't the previous government want a third terminal? Why the ministry today is not pushing for it?
That the previous government was not interested in new terminals is a fact. The question is why the PM was not properly informed and what are the implications of that? The debate is that the ministry is using numbers of its "own choice" which are obviously in its favour. That is correct, albeit partially. But in return, media persons are using the same tool to prove their point of grossly overstated losses. Both are only partially right. Unfortunately, however, this debate appears to be going nowhere.
The incumbent government's approach to terminals is not different from its predecessor's. Both the governments showed different approaches to this challenge for different seasons.
The media claim that the government bought RLNG in advance in Sep 2019, but failed to highlight that the cheaper cargos were bought in Nov19 and Dec19 (tenders) where government got prices of less than 10 percent for Jan20 deliveries and less than 9 percent for Feb20 deliveries. They could have thought of similar market trends in 2020 but the reality is different in retrospect - hindsight is always right. The media picked up on the minister accusing them of wrongly using last year's prices of $6.5 for the summer of 2019 to compare this summer's prices of $3.5 as Brent was close to double the price last summer. But media use the same spot argument to win the point between this summer (2020) and winters (2020-21). The argument is that government would have bought at $5.5 when the spot was $3.5 in summer, but government didn't do so and is now buying at $7 (actual price is even higher).
Here media are conveniently missing the 20 percent upward movement in Brent - on the point that the minister was criticized. Plus, the argument was built based on $5.5 winter prices available at JKM (Japan Korea Marker) in summer. JKM is not a physical product that can be bought in future; it is a paper hedge which is used as a proxy for pricing. LNG forward is sold by bilateral negotiations or by tender. And traders in Pakistan charge premium on that due to government red tape and RLNG supply chain risks.
Having said that, there would have been some advantage of doing contracts earlier - like South Korea did at 13 percent - not at 8-10 percent which was the spot at that time. The other thing that the media are missing is that had the government gone to forward buying of number of cargos in Aug-Sep, the prices would have moved up. The moment someone goes in the market to buy in bulk from traders, the prices move up.
The Koreans sat with their long-term supplier to have over the counter deal. Pakistan could have done this with Qatargas at 13 percent when the spot was at 8 -10 percent. Here, the NAB fears come. Had the government gone to Qatargas to buy at 13 percent when the spot was 8-10 percent, the media would have taken them to the cleaners. Another important element is that there are pending NAB cases. Opposition will continue to focus on throwing dirt on government's LNG procurement as it helps them to step up pressure on a seemingly beleaguered PTI government. They probably will use any means possible to create the impression. On the other hand, the government wants to prove that their procurement is indeed economical in order to justify cases against opposition. In the middle of all of this, focus on long-term development of the industry has taken a back seat. The debate on RLNG must stop.
Copyright Business Recorder, 2020