Government not interested in the import of LNG

Government not interested in the import of LNG

The government of Pakistan move to import Liquefied Natural Gas (LNG) has received several hurdles, including the hike in international price of the product and the government’s own reluctance to kowtow to international practises
by offering a sovereign guarantee to firms presently bidding to import the gas.

The petroleum ministry has been convincing the Council on Common Interest (CCI) for the endorsement of a complete incentive package for LNG import terminal operators, including a five-year tax holiday. Petroleum Secretary Ijaz
Chaudhry said that the Federal Board of Revenue (FBR) is agreeable to such a policy.

Still many companies, including the Turkish firm Global Energy International Pakistan (GEIP) have been reluctant to begin importing gas until the government assures a guarantee for payment but that violates the 2011 LNG Policy.

The petroleum ministry rejected GEIP’s demand at a meeting held on December 13, on grounds that meeting the condition would require amending the policy, which in turn would delay the process.

Petroleum ministry officials were cautious in commenting about the matter. “We are examining whether the demands of GEIP are doable or not,” said the petroleum secretary.

The arrangement GEIP is looking for would involve the state-owned Sui Southern Gas Company and Sui Northern Gas Pipelines to guarantee that they will buy – and pay for – 150 million cubic feet per day (mmcfd) and 200 mmcfd respectively.

GEIP specifically wants to avoid having the power companies as its end-clients since that would involve GEIP becoming entangled in the inter-corporate circular debt issue, which has financially crippled the power sector owing to
the government’s inability to pay its promised subsidies.

“We have sought a payment guarantee against the supply of gas to the power sector that is unable to give guarantees itself due to the reluctance of banks to extend financing,” said one GEIP official.

GEIP officials say they expect to invest $350 million in building an import terminal that will be able to provide 500 mmcfd of gas. At the current international price of close to $18 per mmcfd, that would cost about $3 billion
a year and would require GEIP to have close to $1 billion in outstanding receivables at any given moment in time.

GEIP officials insist that, despite the high cost of LNG, their project would still save the country about $1 billion per annum in imports of oil to run power plants.

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Posted by Wajahat Javed on Dec 22 2011. Filed under Business, Pakistan. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry