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LNG import and terminal – controversy rumbles on

Terminal operator Engro insists it will earn only $150m over 15 years. PHOTO: REUTERS


Terminal operator Engro insists it can earn solely $150m over 15 years. PHOTO: REUTERS

ISLAMABAD: The Nationwide Accountability Bureau (NAB) has arrested the person behind beginning liquefied pure fuel (LNG) imports and establishing the nation’s first LNG terminal.

It was the pilot challenge for Pakistan and was apparently applied in haste preserving in view the worsening fuel and energy shortages within the nation. Officers are of the view there could be some procedural flaws however the intention was not dangerous in any respect.

Then petroleum minister Shahid Khaqan Abbasi, who was overseeing all the method, wrote a letter to NAB chairman at the moment, asking him to not harass the officers involved.

Abbasi, who’s related to the Pakistan Muslim League-Nawaz (PML-N), informed the NAB chief that he was engaged in your entire course of and can be answerable for all the things. Now, he’s going through trial after change of presidency because the Pakistan Tehreek-e-Insaf (PTI) has taken energy.

Engro constructed the primary LNG floating terminal with an funding of $130 million. The corporate is alleged to have collected $272,000 per day on account of capability prices when the federal government was importing 400 million cubic toes of LNG per day (mmcfd).

Now, the capability funds have come all the way down to $228,000 per day with enhanced LNG imports of 600 mmcfd. With an funding of tens of millions of {dollars}, the query arises how a lot cash Engro will earn over the 15-year interval for which an settlement has been signed with Qatar for LNG imports.

Total income for Engro from this challenge has been estimated at $1.5 billion. The corporate argues it can pay again round one-third ($0.45 billion) of the income to the federal government – state-owned Port Qasim Authority (PQA) and the federal govt – within the type of taxes and port and delivery royalties.

The lease of floating storage and re-gasification unit (FSRU) is about $0.75 billion and the shore aspect facility prices $0.13 billion over the 15-year interval. Engro insists it can earn solely $150 million over the mentioned 15 years.

Are there any procedural flaws?

An Engro spokesperson identified that in 2013 when the power disaster worsened, the federal government, by way of Inter State Gasoline Techniques (ISGS), issued an open and aggressive tender for the establishing of an LNG terminal.

Engro Elengy Terminal Pakistan Restricted (EETPL) participated within the single-step, two-envelope bidding course of. An impartial, skilled and worldwide agency – QED – evaluated all of the technical bids. Of the 2 bidders, EETPL received the bid strictly in accordance with the Public Procurement Regulatory Authority (PPRA) Guidelines 2004, mentioned the spokesperson.

The LNG Companies Settlement (LSA) was accredited by the Financial Coordination Committee (ECC) and Sui Southern Gasoline Firm (SSGC) board in addition to by the cupboard in an auditable and clear method.

 

Financial profit

The spokesperson mentioned accelerated work allowed Engro to make the LNG terminal operational from March 28, 2015, in solely 335 days and inside the dedicated timeframe. Since then, the terminal has imported over Eight million tons of LNG, lowering Pakistan’s fuel deficit by an estimated 20-25%.

Based on the spokesperson, Pakistan has saved roughly $5 billion for the reason that begin of the LNG challenge, changing the import of dearer furnace oil with LNG. The challenge has additionally revived the fertiliser sector, compressed pure fuel (CNG) filling stations and greater than 500 industrial items by making certain constant fuel provide by way of LNG imports.

Elements of Punjab might have probably shut down if there was no LNG, the spokesperson added.

 

Capability prices

Capability funds are a norm within the power trade for initiatives of such nature and are designed for the restoration of funding and working prices together with the lease of FSRU for giant and sophisticated initiatives.

It’s also essential to notice that fastened capability or ‘take or pay’ mechanism is binding on each the events ie if Engro fails to ship fuel as per high quality or is offline for any cause, it can pay a penalty of $342,000 per day and in addition lose the capability price of $228,000 per day for that exact day.

Such a mechanism just isn’t new for the LNG trade and most LNG re-gasification terminals and liquefaction chains function on the identical take or pay mannequin.

 

IPPs

The same take or pay mannequin has additionally been utilized within the case of impartial energy producers beneath which energy producing items of as much as 4,200 megawatts have been put in and operated for the reason that mid-1990s.

For a 600MW IPP, the levelised upfront tariff accredited by the Nationwide Electrical Energy Regulatory Authority (Nepra) is 1.83 cents per kilowatt hour (kWh), which suggests the IPP will obtain roughly $242,000 a day as fastened price of the ability plant.

This doesn’t imply that the IPP will make revenue of $2 billion over its lifetime of 25 years because it must get better hefty capital expenditure and working prices, insurance coverage, and so on via such a mechanism.

Fastened day by day prices – referred to as capability funds within the trade – had been a part of the contract issued by ISGS and all bidders had been supplied with an equal alternative.

 

Tolling price comparability

ETPL’s tolling price is among the best on the planet. Its tolling price was $0.66 per million British thermal items (mmbtu) when imports had been 400 mmcfd, however it has come all the way down to $0.44 following enhance in imports to 600 mmcfd.

In Indonesia, Arun LNG prices $2.58 per mmbtu, different terminals in Indonesia obtain $1.5-1.Eight per mmbtu, China LNG Terminals $1.5-2 per mmbtu, India’s Kochi $1+ per mmbtu, Italy’s Adriatic LNG $1.47 per mmbtu, Italy’s offshore LNG Toscana $1.2 per mmbtu, Korea & Japan LNG terminals $0.8-1 per mmbtu, Lithuania’s Klaipedos Nadta $0.88 per mmbtu and Pakistan’s SSGC retrofit challenge (scrapped) $0.Eight per mmbtu.

 

Controversy over price escalation

There was controversy that preliminary price of the challenge was $40 million, which later escalated to $150 million. Nevertheless, Engro and authorities officers say $40 million and $150 million had been two completely different initiatives, which had completely different technical specs.

The $150-million challenge was a completely new and Greenfield challenge the place intensive dredging was undertaken to create a brand new berth. The $40-million challenge had been proposed to make use of the present working berth at Engro Vopak Terminal Restricted (EVTL) the place no dredging or offshore building work was required.

Moreover, beneath the revised challenge, a 24-kilometre pipeline community was additionally laid a brand new jetty was constructed, which was capital-intensive in nature, the Engro spokesperson mentioned.



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