The Economic Co-ordination Committee (ECC) of the Cabinet has reportedly rejected a summary of petroleum ministry regarding a revision in the implementation strategy of Gwadar-Nawabshah LNG terminal and pipeline project, saying the summary should be submitted after completion of due process, well-informed sources told Business Recorder on Friday.
The ministry of petroleum in its summary has called for implementing the Gwadar-Nawabshah LNG terminal and pipeline project as an alternate strategy to IP gas pipeline project; however, the ECC directed the ministry of petroleum and natural resources to finalise the funding plan, preferably on government to government (G to G) arrangement or BOT basis.
In pursuance of the ECC decision, the ministry of petroleum and natural resources explored the interest of the government of China in the project. The Chinese government, in response, nominated the China Petroleum Pipeline Bureau (CPP) in the Protocol Minutes of the Meeting signed between the two sides on November 08, 2014.
Subsequently, the two governments also entered into a government-to-government framework agreement on April 20, 2015 during the visit of the President of China to Pakistan. The G to G Framework Agreement was approved by the Prime Minister under rule 16(2) of the Rules of Business, 1973 and it was advised to place the agreement before the Cabinet for its formal approval. The Cabinet approved the framework agreement in its decision of July 15, 2016.
The sources said since the project was being executed under a G to G arrangement, the MP&NR sought ECC's approval, to authorise ISGS, in pursuance of Rule 5 of the Public Procurement Rules, 2004, to award EPC contract after successful negotiations with CNPC/ CPP of China along with other ancillary agreement(s) without resorting to open competitive bidding process enshrined under the public procurement laws. The negotiated EPC-F contract, including price, will be submitted for approval of the ECC. The ECC approved the proposal in its decision of December 24, 2014.
The ministry of petroleum & natural resources moved a summary for the ECC for approval of revised execution strategy of the Gwadar-Nawabshah LNG terminal and pipeline project. The ECC decided that LNG terminal at Gwadar be constructed on BOOT basis under the G to G Framework Agreement with China. The ECC decision was accordingly communicated to the CPP for submission of techno-commercial proposal on Build Own Operate Transfer (BOOT) model as earlier the CPP had submitted the bid on EPC + F basis.
In response, the CPP expressed its preference to undertake construction or LNG terminal facilities including jetty, dredging works, breakwater, sub-sea gas pipeline, onshore spur gas pipeline, metering station, etc on EPC + F basis as this will facilitate arrangement of funding from China; however, communicated its inability to arrange FSRU and requested that this should be taken out of the project scope.
In view of the CPP request, the MP&NR proposes to undertake the LNG terminal facilities at Gwadar on an EPC+F basis whereas the FSRU would be arranged on tolling basis through an open competitive bidding process. The sources said the CPP confirmed that the financers in China are ready to fund 85% of the project cost on concessional terms subject to a formal loan application to be submitted by Economic Affairs Division.
According to sources, the CPP submitted the techno-commercial proposal on September 30, 2015. The bid was valid for a period of 180 days, extendable for an equal period which expired on September 24, 2016. The CPP has now extended the bid for a further period of 180 days, valid till March 23, 2017. Furthermore, in line with the ECC decision, the recommendations of the Price Negotiations Committee (PNC) for the gas pipeline segment of the project have already been finalised and incorporated in the PC-I submitted with the ministry of planning and the same have been approved by ECNEC in its meeting held on September 30, 2016 while excluding compressor and allied facilities at Nawabshah with the advice to submit a separate PC-I for the same.
The sources further stated that the final negotiated project cost for Gwadar-Nawabshah Gas Pipeline (part 1) inclusive of taxes and duties on EPC+F basis, as approved by ECNEC, is Rs 203.314 billion ($1.94336 billion). The funding of the gas pipeline segment is currently being pursued by EAD with EXIM Bank. Under the funding arrangement, EXIM bank will provide a concessional loan of 85% of EPC cost of Rs 148.364 billion excluding withholding tax of Rs 13,235.70 which will be funded from GIDC along with other project costs including but not limited to 15% of EPC cost, right of way, security cost, other taxes and duties including customs duty, provisional and federal sales tax etc. A separate ECC summary for the exemption of all taxes, as recommended by PNC, will be submitted.
The ECC on September 10, 2008 had issued policy guidelines to OGRA for revenue expenditure of ISGS to be included in the operating costs of SSGC and SNGPL at the ratio of 51:49. While the steering committee/ sub-committee of the ECC in its 10th meeting held on December 31, 2010 tasked GHPL to fund the capital expenditure of IP pipeline project including financing of the E&PM consultancy. Pursuant to equity injection by GHPL, the shareholding pattern of ISGS has changed to GHPL 99.57%, SSGC 0.22% and SNGPL 0.21%. In this regard, OGRA in its letter No OGRA-10-3(18)/2006 of July 26, 2016 had recommended the reimbursement pattern to be aligned in the light of current shareholding pattern of ISGS.
The petroleum ministry is of the view that ISGS's establishment and revenue expenditures may be reimbursed by the shareholders (ie GHPL, SSGC and SNGPL) as per their shareholding pattern for which a reimbursement agreement will be signed between the parties.
After explaining the background, the petroleum ministry has submitted the following proposals with the ECC held on December 13,2016: (i) the final negotiated project cost of Rs 203.314 billion for Gwadar-Nawabshah Gas Pipeline (part I) excluding compressor and allied facilities at Nawabshah with the advice to submit separate PC-I for the same on EPC+F basis as approved by ECNEC; (ii) construction of LNG terminal facilities (part 2) at Gwadar on EPC + F basis instead of BOOT and exclusion of FSRU from the scope of work of CPP and float separate tender for FSRU on tolling basis; (iii) allow ISGS to extend CPP's bid validity beyond September 24, 2016; (iv) authorise ISGS to sign/execute the EPC+F agreement for Gwadar-Nawabshah gas pipeline (part I) with CPP; (v) and ISGS establishment and revenue expenditures to be reimbursed by the shareholders (ie GHPL, SSGC and SNGPL) as per their shareholding pattern through signing of a reimbursement /subscription agreement.
The ECC in its meeting on December 13, 2016 decided that since the PC-I of the project had been approved by the CDWP and ECNEC, therefore, clarification and amendment (if any) regarding the project are required to be placed before the CDWO/ ECNEC for consideration. The ECC also directed the ministry of petroleum to submit a separate summary on the issue with the ECC with complete background of the case after completion of due process.