ISLAMABAD - The Oil and gas Regulatory Authority (Ogra) has revoked capacity allocation of three influential private LNG firms while cancellation of terminal construction licences of these private companies is also likely in next couple of days, reliable sources said on Friday.

Earlier, the Ogra had approved the natural gas pipeline capacity allocation to private firms (Pakistan Gasport Limited, Global Infrastructure Limited and Elengy Terminal Pakistan Limited (Engro) on October 27, 2011 to transport gas through the transmission system of Sui Southern Gas Company Limited (SSGCL) and sale of gas to the country’s power and industrial sector. Pakistan Gasport Limited was allocated 400mmcfd, Global Infrastructure Limited 500mmcfd while Elengy Terminal Pakistan Limited (Engro) was given 500mmcfd by the authority. The capacity allocation was subjected to certain conditions/ milestones with the provision that failure to achieve these milestones will tantamount to cancellation of allocated capacity. Performance bank guarantee of $5million, encashable in Pakistan, to be furnished within 90 days of capacity allocation and financial closure must be achieved within six months of the capacity allocation with due intimation to Ogra. 

Likewise, the private firms engaged in the business of LNG were asked and made responsible to pay the fees to SSGCL and SNGPL over the use of transmission system of both state owned gas utilities prior to the direct sale of gas to power and industrial sector. And, the LNG firms were also made responsible to purchase LNG from internal market, construction of floating storage and re-gasification unit in Karachi while SSGCL was expected to lay a pipeline worth above $1 billion from Karachi port to Punjab border under these arrangements. However, period for their construction licenses and financial close have also been expired but they have not requested OGRA for any extension therein.

It is also testimony of the fact that the Rule 12(4) of Ogra Natural Gas (Regulated Third Party Access) Rules 2012 (TPA Rules) also provides that in case the contracted capacity utilisation is below seventy per cent (70pc) in two calendar years, the unutilised part of the contracted capacity may stand cancelled. In pursuance of Clause 2 of Schedule II of the TPA rules, LNG project developers were also obliged: (I) committed first RLNG delivery date. (ii) heads of agreement (HoA) with builder or provider of Floating Storage re-gasification Unit (FSRU) of Floating Storage United (FSU) for the provision of FSRU/FSU in case of FSRU/FSU based projects.(iii) Agreement with credible and established LNG shipper for supply of LNG to meet RLNG end users purchase commitments. (iv) detailed design, engineering and construction schedules. (v) timeline for achieving Financial Close.

Sources in petroleum ministry informed that an important meeting of the authority (ogra) was held on July 25 under the chair Saeed Ahmed Khan chairman Ogra. The meeting decided in principle to cancel the allocated 400mmcfd capacity allocation of Pakistan Gasport Limited, 500mmcfd of Global Infrastructure Limited and 500mmcfd of Elengy Terminal Pakistan Limited (Engro) on various grounds.  And, after the cancellation of capacity allocation of these private firms, license for the construction of LNG terminal are expected to revoke in couple of days, they added.

“Keeping in view lack of progress and failure to meet the aforesaid milestone, non-compliance of capacity allocation conditions, and TPA rules etc by the project developers, the official said, adding,” The authority has decided to revoke the capacity allocation of said project developers forthwith. However, in future, if the said project developers show progress on their projects then pipeline capacity can be allocated afresh.”

When contacted with sources in Ogra, they were of the similar view like of petroleum ministry’s that violations in third party access towards the sales and purchase of 1400 mmcfd LNG, failure in depositing US$5 million and six other certain conditions of billion rupees worth project had contributed towards cancellation of LNG gas firms’ contracts.  These LNG companies remained far behind towards the construction of f LNG terminals in the country and to take measures to control persistent energy crisis of the country.

They were of the view that so far the LNG developers have failed to achieve any milestone or to make any significant progress. They have yet not initiated construction of their terminal, no binding agreement has been signed with any potential consumer and no credible evidence has been provided about buildup of financial resources for the purpose. They also said that the incumbent regime had indicted its intention to import LNG under integrated and tolling arrangements through gas companies which had also dampened the pursuit of LNG developers for private consumers. They are of the opinion that the capacity allocation was made for LNG business under third part access regime and when the government itself enters the business through import of LNG and buying of RLNG (re-gasified liquefied natural gas), the third party concept takes the back seat rendering the pipeline capacity allocation unnecessary for a feasible future.