SSGC Board rejects Engro bigger FSRU

Ibn-e-Ameer

Islamabad:  Sui Southern Gas Company (SSGC) Board has unanimously rejected Engro Elengy to a bigger FSRU Sequoia.

September 3 was the last day for utilizing bigger FSRU.

SSGC Board held its emergency meeting on Friday to decide whether it should use its first right of utilizing bigger FSRU or leave this option.

However, the board decided that it would not use its first right to utilize a bigger FSRU.

Sources say that National Accountability Bureau (NAB) has been investigating the Engro LNG terminal contracts.

Therefore, the SSGC board was not ready to take risks.

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Furthermore, Engro had also demanded to include a take or pay clause which meant SSGC had to pay capacity charges in case it does not utilize the allocated capacity.

Ministry of Energy had built pressure on the SSGC board to make a decision.

Ministry wanted to avoid a gas crisis in upcoming years.

However, SSGC had refused to allow the use of bigger FSRU.

Engro had been building pressure on SSGC as well to seek permission for use of a bigger FSRU.

Earlier, SSGC had an agreement to utilize 400 mmcfd capacity to utilize Engor LNG terminal. However, later SSGC signed an agreement with Engro to get an additional 200 mmcfd capacity that led the case to NAB.

Now, there has been another NAB for availing bigger FSRU, SSGC officials say adding if it strikes a deal with Engro.

Secretary Petroleum had written a letter to NAB seeking clearance to avail the bigger FSRU of Engro.

FSRU Sequoia has a capacity of 900 mmcfd, whereas the government has a 600 mmcfd allotment.

Engro wanted SSGC to either use its first right or allow it to use it for private purposes under third-party access rules.

In a letter to Energy Minister Hamad Azhar and Secretary Petroleum, Yusuf Siddiqui, Chief Executive Officer Engro Elengy Terminal, had stated that their capacity to retain the FSRU Sequoia beyond September 3rd, 2021 will end.

If no solution is found, the old FSRU Exquisite will return in the second week of September 2021 and resume operations under the LSA’s current structure.

He stated that in August 2021, Secretary Petroleum convened a series of meetings with SSGC, SNGPL, OGRA, PLL, EETL, & PGPL leadership to determine the best approach to utilize the existing LNG capacity at the two terminals.

SSGC had first right to the surplus capacity, and if mutual agreement in good faith is not reached in 5 months, TPA’s only request is that SSGC either enables TPA to EETL or agree to Take or Pay with SSGC, as this is the ultimate purpose of utilizing the excess capacity, he said.

I hope you understand that EETL’s shareholders, Engro Corp and Royal Vopak of Holland, and partner, Excelerate Energy of the United States, have taken an unprecedented risk by entering into a transaction worth more than USD 300 million with no downstream commitment or pipeline capacity allocation based solely on their assessment of the Pakistani market and the Government of Pakistan’s investment-friendly policies, which we support.

With regards to MOE’s advice, SSGC evaluated the option to replace FSRU Exquisite with a larger size FSRU Sequoia in order to have additional regasification capacity.

SSGC after undergoing proper due diligence has concerns as this would lead to serious exposure and risks for SSGC.

EETL is asking SSGC to forego its step in right in case of operators default and also waive its option to purchase the FSRU, this would be a violation of the LSA and expose SSGC to potential future risks.

According to SSGCL, the clearance of NAB would be vital.  With two new terminals coming up, this enhancement can raise concerns in the future.

Also, PPRA is not being followed which too can point towards preferential treatment to one terminal operator whereas the other terminal also has surplus capacity available.

Moreover, SNGPL and PSO have not yet committed to utilizing the additional capacity & availability of additional LNG cargos.

Subsequently, SSGCL had not received clear instructions and directives for utilizing this excess capacity along with a waiver from PPRA.

SSGCL also seeks clearance from Cabinet to initiate negotiations besides NAB’s go ahead. SSGCL management had referred these matters to SSGC Board for guidance.

The BOD after due deliberation considering the legal, commercial and financial exposures decided not to take this transaction in lieu of the above-mentioned risks.