SNGPL allowed to recover LPS from LNG consumers

Atif Abbas

Islamabad: The users of imported gas are going to land in another trouble as the government has allowed Sui Northern Gas Pipeline Limited (SNGPL) to recover the Late Payment Surcharge (LPS) on delayed payments.

 This condition would be made part of Gas Sales Purchase Agreement (GSPA) between SNGPL and Pakistan LNG Limited (PLL).The government has said that it would be agreed upon by the both parties on the principle that the LPS would be subject to receipt from downstream consumers.

It may be surprising that Pakistan had signed long and short term LNG contracts to import 800 million cubic feet per day (mmcfd) gas but the imported companies, distributors and customers had no gas supply agreements. This has resulted in disruption of supply of imported gas and consumers had to pay multi-million dollars capacity payments.

 The government has advised M/S SNGPL and PLL to execute a separate GSPA for supply of 185 mmcfd on take or pay basis backed by submission of Standby Letter of Credit (SBLC). M/S SNGPL and PLL have also been advised to execute a separate GSPA for supply of RLNG volumes over and above 185 mmcfd which will be backed by submission of SBCL up to 50 per cent of the supply volumes against which orders are to be placed by SNGPL.

The condition with respect to Late Payment Surcharge (LPS) on delayed payments for supply of volumes over and above 185 mmcfd shall be agreed upon by the both parties on the principle that the same will be subject to receipt from downstream consumers.

PLL and PSO which import liquefied natural gas (LNG), they are piling circular debt. SNGPL has failed to pay dues to PLL and PSO on account of supply of imported gas. In order to cope with its declining working capital, PLL had approached the finance division to provide additional government guarantee of $150 million but the division had refused due to commitment with the IMF loan programme to control deficit. Its guarantee of $150 million had almost been exhausted and company was facing problem in making commercial borrowings.

PLL is a subsidiary of Government Holdings (Private) Limited, which is fully owned by the federal government. It was established with an initial equity of Rs15 billion. Soon after its incorporation, the company started LNG import by the end of 2017 and has so far entered into two medium and long-term LNG supply contracts besides utilising the entire contracted capacity of the second LNG terminal run by Pakistan GasPort Limited (PGPL).

Unlike LNG import by PSO, which is covered by different contracts from shipment to supply to end-consumers, PLL could not enter into LNG supply contracts with the consumers despite securing a marketing licence from the Oil and Gas Regulatory Authority (Ogra). Consequently, the government decided to utilise the LNG imports made by PLL up to the full contracted capacity of the PGPL terminal, ie 600 million cubic feet per day (mmcfd), through SNGPL.

However, the arrangement between PLL and SNGPL could not be provided with any legal cover. The Cabinet Committee on Energy and the ECC had decided that PLL and SNGPL would supply only 185 mmcfd to an LNG-based power project, which has not yet been commissioned.

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