ISLAMABAD: The operators of two liquefied natural gas (LNG) terminals — Engro Elengy and Pakistan Gasport — on Friday challenged allegations by two federal ministers that they secured contracts at exorbitant rates through non-transparent and underhand deals and pledged to defend them.
“Engro is under no contractual obligation to renegotiate the contract,” said Engro Elengy Terminal Pvt Ltd (EETPL), a subsidiary of the country’s largest private sector conglomerate Engro Corporation.
The electricity generation cost based on LNG currently stands at Rs9.9 per unit (kWh) compared to Rs15.5 per unit of furnace oil base generation.
In a statement, it said the company entered into a 15-year deal with the government following a transparent and competitive procurement process. The statement mentioned that following the agreement, Engro together with local and international investors and financiers undertook investment in the project.
“The government does not have a contractual right to reopen or renegotiate its terms and we are accordingly under no obligation to renegotiate the same”.
On the other hand, Pakistan Gasport Ltd also said it had secured the contract in a transparent manner and is willing to explain the same to the new government.
Earlier on Thursday, Minister for information Fawad Chaudhry and Petroleum Minister Ghulam Sarwar Khan announced that the government would revisit contracts through renegotiations claiming that these were secured at exorbitant rates of unprecedented level, indicating some underhand deals.
They said Engro earned up to 44 per cent return on equity (ROE) and PGPL 22.74pc in first nine months which was higher than industry standard of 15-17pc returns in the oil and gas sector.
Engro said ROE was not the accurate benchmark to analyse net returns to shareholders for such tariff based projects. ROE mechanism completely ignores the fact that a significant component of profits from such projects has to be allocated for loan repayment and only the leftover portion goes to the shareholders as ‘dividend’.
Instead, the benchmark metric for such projects should be equity internal rate of return (IRR) – which takes into account the cash flow returns to shareholders including the timing of these returns.
On similar lines, in the power sector, National Electric and Power Regulatory Authority (NEPRA) also uses IRR for benchmarking returns of independent power producers (IPP), said Engro.
After the energy crisis in Pakistan worsened in 2013, the government, via Inter State Gas Systems (ISGS), issued an open and competitive tender for development of an LNG terminal. Engro participated in the single step, two envelope bidding process.
An independent, professional, international firm – QED – evaluated all technical bids. Of the two bidders, EETPL won the bid for the project strictly in accordance with the Public Procurement Rules, 2004. LNG Services Agreement (LSA) was approved by the Economic Coordination Committee and the Sui Southern Gas Company Board, as well as by the Cabinet, in an auditable and transparent manner. Any statements to the contrary are false.
Engro said the company has completed the project in record time of in 335 days on March 28, 2015 and within the committed time frame. Since then, the project has handled over 11 million tonnes of LNG, reducing Pakistan’s gas deficit by an estimated 20-25pc.
Pakistan has saved well above $1 billion since the start of project, replacing expensive furnace oil & diesel imports with LNG without even accounting for efficiency in terms of fuel. The project has also revived the fertiliser sector, CNG sector, and more than 500 industrial units by ensuring consistent supply of gas via LNG import.
Post completion and commencement of operations, the project has been funded by loans from International Finance Corporation (IFC), Asian Development Bank and local banks namely MCB, Askari Bank and Pak Brunei Investment Company. IFC is also a shareholder in the project.
Engro has always acted, and continues to act, in a fair and transparent manner and has always provided information requested by regulatory and government agencies.
Fasih Ahmad, Chief Executive Officer of PGPC said it had set up its import terminal through a fully transparent, competitive bidding process overseen by Galway Group, one of the world’s premier LNG consultancies. In its independent evaluation report Galway cited PGPC’s tariff as among the lowest in the world.
He said the company and its national and international sponsors welcome the opportunity to discuss these facts with the newly inducted petroleum minister for the common purpose of ensuring economic growth and success of the country.